Money managers under the microscope
from Global Investing:
(The author is Head of EMEA Research at Thomson Reuters fund research firm Lipper. The views expressed are his own.)
By Detlef Glow
The exchange-traded fund (ETF) market has shown strong growth since its inception in Europe. Many fund promoters have sought to capitalise on this, seeking to differentiate themselves from rivals and match client needs by injecting some innovation into their product offerings. This has led to a broad variety of ETFs competing for assets, both in terms of asset classes and replication techniques.
Looking at assets under management, however, the European ETF market is still highly concentrated. The five top promoters account for more than 75 percent of the entire industry. On a fund-by-fund basis the concentration is even greater.
The ten top funds by assets under management (AuM) account for 25.68 percent of the overall total, while the largest fund in the European ETF universe, iShares DAX, accounts for 11.624 billion euros or 4.75 percent of the overall market.
from Global Investing:
Simon Wong is partner at investment firm Governance for Owners, adjunct professor of law at Northwestern University School of Law, and visiting fellow at the London School of Economics. He can be found on Twitter at @SimonCYWong. The opinions expressed reflect his personal views only.
There is much to commend in the Kay Review final report. It contains a rigorous analysis of the causes of short-termism in the UK equity markets and wide-ranging, thoughtful recommendations on the way forward. Yet, it is surprising that John Kay omitted one crucial reform that would materially affect of the achievability of several of his key recommendations – shortening the chain of intermediaries, eliminating the use of short-term performance metrics for asset managers, and adopting more concentrated portfolios. What’s missing? Reconfiguring the structure and governance of pension funds.
from Global Investing:
Investors just cannot get enough of emerging market bonds. Ukraine, possibly one of the weakest of the big economies in the developing world, this week returned to global capital markets for the first time in a year , selling $2 billion in 5-year dollar bonds. Investors placed orders for seven times that amount, lured doubtless by the 9.25 percent yield on offer.
Ukraine's problems are well known, with fears even that the country could default on debt this year. The $2 billion will therefore come as a relief. But the dangers are not over yet, which might make its success on bond markets look all the more surprising.
“A game of two halves” is a footballing cliché in the UK, but was particularly apt for the European funds industry in 2011. The stock market falls that began in July not only ended the healthy sales activity that had started the year, but triggered a wave of redemptions that rolled through the industry. While these outflows ebbed slightly in the final quarter of the year, there were few who did not feel the cold chill of investors withdrawing from mutual funds by the year-end.
Net sales of long-term funds (i.e. excluding money market funds) in 2010 (305.8 billion euros) exceeded not just those of 2009 (257.7 billion), but also the level achieved in pre-crisis 2006 (265.9 billion). Expectations were therefore high when the first half of 2011 saw inflows of 96.1 billion euros, but this was followed by outflows of 155.9 billion, so that the year as a whole ended in the red (-59.8 billion) for only the second time in a decade (the 2008 total was -391.4 billion euros).
One way of measuring this is to look at the assets invested in index tracking funds (where minimising costs is a core part of the product) and compare this to funds of funds (where the importance of professional fund manager selection entails an additional cost).
With 30.5 billion pounds invested in the former and 56.6 billion pounds in the latter as of November 30 2011, it would seem that retail investors in the UK are almost twice as likely to pay more for active management and fund selection than to minimise costs and seek to mimic the returns of an index. A similar picture is revealed for sales activity in 2011.
By Detlef Glow, Head of EMEA Research at Thomson Reuters fund research firm Lipper. The views expressed are his own.
Exchange traded funds (ETFs) have found themselves under ever more scrutiny from regulators and market participants this year and expectations are that new rules for the sector are just a matter of time.
By Dunny P. Moonesawmy, Head of Fund Research for Lipper in Western Europe, the Middle East and Africa. The views expressed are his own.
Spare a thought for the fund managers trying to make their business work in the Middle East and north Africa (MENA) this year.
Among the side-effects of the financial crisis, the importance for European wealth managers and other intermediaries of both managing investors’ expectations and understanding fully what those expectations are, has been underlined.
This is not entirely new. The rise of absolute return products largely reflects intermediaries’ efforts to deal directly with client expectations that, for many, have taken a severe blow. It is worth looking back at the level of inflows to funds seeking absolute returns before and after 2008 (the nadir for the industry in terms of sales activity) to see how this has evolved.
I would like to tell you a story. It’s one about the tempestuous relationship between fund managers and their investors, a tale of envy, desire and basis point negotiations. You may have spotted by now that this is not the plot for this season’s latest blockbuster.
My story has recently gained a little extra spice with two old-fashioned heroes riding into view. One from the West – Omaha - and the other from the East - well, his father hailed from Russia – with both willing to make a little less money in order to help their fellow citizens. Warren Buffett and Stuart Rose are not alone; others in France and Germany are also saddling up. These horsemen seem to be heading in the opposite direction from those in the European funds industry.
By Dunny P. Moonesawmy. Head of Fund Research for Lipper in Western Europe/Middle East and Africa. The views expressed are his own.
Hedge funds have delivered decent risk-return results over the past ten years. And as transparency and liquidity increased post-credit crisis, they have regained their appeal as providers of absolute return opportunities for investors. In addition, an increasing lack of market visibility globally has played to hedge funds’ supposed strengths, with total industry assets under management now exceeding the $2 trillion, according to Hedge Fund Research.