BUSINESS TO BUSINESS IN ASSET MANAGEMENT: INDEX PROVIDERS

AM | @Mackfinance

"Profits generated by index providers have risen significantly" — Chris Flood

. Chris Flood: "Profiting from passive aggression", Financial Times, 16 November 2015.
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THE ETF REVOLUTION: SOME NUMBERS

AM | @Mackfinance

"The growth is scary" — Anonymous ETF provider

. New record. The ETF market has set a new record for global asset gathering (inflows): some $372bn for 2015. In December alone, ETFs posted net inflows of $55bn, marking the 23rd consecutive month of positive net flows, according to research firm ETFGI. Over the past five years, the inflows reach $1.5tn after growing dissatisfaction with the high fees and widespread underperformance of actively managed traditional mutual funds.

. Total ETF assets. Total assets stand at $2.99tn—a figure consultancy PwC expects to hits $5tn by 2020.

. The Big Three. BlackRock, Vanguard and State Street Global Advisors together control more than two-thirds of the ETF industry's global assets and in 2015 grabbed 55% of the new cash allocated by investors to ETFs, according to ETFGI.

. Others. Some of the notable beneficiaries of investors' growing interest in ETFs include WisdomTree and Deutsche Asset Management, which both saw inflows to ETFs more than triple in 2015 compared to the previous year.

. Minimum size. ETFGI estimates that more than 6,100 ETFs are now available to investors globally, but around 70 per cent of those funds have less than $100m in assets, the minimum level generally regarded as necessary to break even.

. Innovation. Providers have to strive to be different. It is vital to have the right products in an increasingly crowded market place, to build ETFs that meet specific client needs. WisdomTree, the New York based manager, runs a pair of currency hedged European and Japanese equity ETFs that were two of the fastest growing products globally in 2015.

. Japan. Figures released by the Japan Exchange Group in February 2016 put the combined January trading value of all ETFs at record Y7.94tn—a 100% increase on the same period last year and a 53.4% month-on-month rise from December 2015. The increase in ETF traded volume was even more marked, jumping 128% year-on-year. (Note the role of the BoJ).

 Sources. ETFGI; PwC: "ETF 2020: Preparing for a new horizon"; Leo Lewis: "ETFs set Japan record", Financial Times, 3 February 2016; Chris Newlands: "Is it time to halt the rise of the ETF machine?" and Chris Flood: "Dominance of big three forces wave of innovation", Financial Times, 1 February 2016.
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PASSIVE ASSET MANAGEMENT: SOME NUMBERS

 AM | @Mackfinance

"The rise of passive managers continues unabated" — John Authers

Most active fund managers do not beat their benchmarks: nine out of ten actively managed European equity funds failed to reach their performance goals over the last decade. In the US, around 80% of large-cap equity managers fell short of their index targets over the same period. These statistics have helped fuel inflows into index-tracking funds, including Exchange Traded Funds (ETFs).

. In the US, 32.4% of long-term funds' assets are managed passively, with $4.52tn under management, against $9.44tn managed actively. The share has roughly tripled since 1998.

. In 2015. Within equities, $169bn flowed out of actively managed funds, with $102bn of that finding its way to passive managers.

. In 2015. Vanguard pulled in $221bn, while BlackRock, including the iShares division, took in $103bn. Most of the traditional active managers suffered big outflows.

. Most funds are actively-managed. Only 15% of fund assets globally are managed passively, but there is an accumulation of data showing that investors face disappointment with active managers.

. Massive under-performance in emerging markets. Fewer than one in five UK small-cap and sterling-denominated emerging market fund managers beat their benchmarks over 10 years. Almost 98 per cent of euro-denominated emerging market funds underperformed over the same period. Fewer than half of the 489 UK equity funds and 1,192 European equity funds that were launched 10 years ago have managed to survive.

Sources. John Authers: "Passive asset managers are good corporate stewarts", Financial Times (21 January 2016); Chris Flood: "Nine out of ten active funds underperform benchmark", Financial Times (25 October 2015).
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CLOSET TRACKING

AM | @Mackfinance

This is quite an interesting story, with many different angles to it: asset management styles (passive v. active), legal risk, ethics, etc. More material to be posted soon! The Aberdeen Asset Managament story is particularly noteworthy; close tracking or not, active asset managers find themselves under a lot of pressure.

. Madison Marriage & Attracta Mooney: “EU probe into asset managers uncovers potential mis-selling”, Financial Times, 2 February 2016. 

. Madison Marriage: "Watchdogs attempt to force trackers out of closets", Financial Times, 16 November 2016

. David Rockets: "Name closet trackers, European regulator told", Financial Times, 8 February 2016.

. Attracta Mooney: "Aberdeen cuts fees on emerging markets fund", Financial Times, 8 February 2016.

. Lex: "Asset managers: out of the closet", Financial Times, 22 January 2016.

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