Transcript Macquarie Funds Presentation: The US Mutual Fund Industry

ETFs: Growth, Innovation, Competition
March 18, 2009
Presenter & Co-author: Loren Fox 212-944-4460 [email protected]
Strategic Insight: 23 Years of Business Intelligence
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Globally, 80+ Leading Managers & Distributors
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ETFs: Growth, Innovation, Competition
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Agenda: Preview Our New Report, On Sale Now
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ETFs: Growth, Innovation,
Competition
200 pages, 70+ tables & charts
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Which ETFs are growing the fastest?
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The Increasing Diversity of ETFs
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Industry Trends Favoring ETF
Expansion
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ETFs vs Traditional Mutual Funds
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The Future of ETFs
More information:
www.sionline.com/published/ETF2009/main.aspx
ETFs: Growth, Innovation, Competition
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ETFs’ Tremendous Growth
2008: $176B US Inflows, $268B Global
US Exchange-Traded Products Growth
2000 through 2008
$B
200
$B
700
180
Net Flows (left axis)
Assets (right axis)
160
600
500
140
120
400
100
300
80
60
200
40
100
20
0
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: Strategic Insight Simfund MF
ETFs: Growth, Innovation, Competition
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US Exchange Traded Products:
More Than Just US Equity
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International Equity
Bond
Commodity
Currency
Leveraged/Inverse
ETFs: Growth, Innovation, Competition
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Which US ETPs Saw Net Inflows in 2008
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US Equity-Focused ETFs
Leveraged Long ETFs
Int’l/Global Equity ETFs
Fixed Income ETFs
Commodity/Currency ETFs
In The Report: Flow/asset data by sub-category
and ETF manager, top-selling products, etc.
ETFs: Growth, Innovation, Competition
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Growing Diversity of US ETFs
Starting in ‘06, ETF/ETN launches exploded:
 634 new funds started since 01/2006 account for roughly
3/4 of all ETFs
 Exposure now available to shorting, frontier markets,
commodities, ‘fundamental’ indexes, quant, etc.
 Diversified all-ETF portfolios now much easier
 Next hot spot: Actively managed ETFs
 In The Report: Much more on active ETFs, ETNs,
leveraged/inverse ETFs, other growth areas;
considerations for launching ETFs
ETFs: Growth, Innovation, Competition
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Long-Term Trends: Asset Allocation “Creed”
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Asset Allocation an even bigger theme in coming years
Shift in emphasis to asset allocation helps ETFs: most
ETFs enable straight asset allocation
Rise in Funds-of-Funds, Fund wrap programs, Target-Date
Funds, etc.
Strategic Asset Allocation: % exposure to international
(stocks and bonds), currency, bonds/TIPs, ‘alternatives’ –
ETFs enable simpler access to asset classes
ETFs: Growth, Innovation, Competition
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Long-Term Trends Support ETF Growth:
The Shift To Holistic Advice
Investing has evolved:
Stocks
Mutual Funds
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Portfolios
Financial advisors have evolved:
Storytellers
Chemists
Doctors
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(Telling stories/info
to sell stocks)
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(Adding value by
mixing assets)
(Diagnose client’s
goals & prescribe
solution)
FA comp shifting from transaction-based to fees for advice
ETFs: Growth, Innovation, Competition
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Long-Term Trends: Shift to Fee-Based Pricing (among
advisor-oriented fund firms)
Sales by Share Class as a Percentage of 2007 Total Sales
B Shares
A Shares at 4% or
greater Load
A Shares at below
2% Load
A Shares at 2-4%
Load
Level-Load
Shares
No Load Shares
Source: Strategic Insight survey
ETFs: Growth, Innovation, Competition
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Fee-Based Distribution Channels Growing Faster
40
Sales by Distribution Channel: Dollar and % Growth
2007 vs 2006
35%
30
30%
25
25%
20
20%
15
15%
10
10%
5
5%
0
0%
Pure
IODC*
Inst'l/Other
Nat'l BD Reg'l/Ind
BD
Wrap*
Bank BD
RIA
Sales Growth (%)
Sales Growth ($ Billions)
% Sales
Growth
(Right
Dollar Sales Growth
(Left Axis)
35
40%
Insurance
Agent
*IODC and fund “Wrap” sales which may have spanned multiple channels are noted above
Source: Strategic Insight Survey
ETFs: Growth, Innovation, Competition
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Fund Distribution: Fastest growing channels
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Intermediary-sold funds far outpacing direct
Fastest growth in sales through:
 Investment-Only DC (+33% in 2007)
 Fund wraps (+28% in 2007)
 RIAs (5% of sales, but +32% in 2007)
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2009 more of the same, relatively
ETFs: Growth, Innovation, Competition
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SI Proprietary Survey of RIAs
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Half of RIAs: ETF use up by 25%+; see further increase
Over the next two years, you plan to use ETFs:
Much more
A little more
The same amount
A little less
A lot less
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Response Percent
24.1%
49.4%
21.7%
2.4%
2.4%
Total responses
Response Count
20
41
18
2
2
83
In The Report: More from the survey – Most popular
asset classes for ETF use, favorite ETF brands and why,
most important characteristics of ETFs, etc.
ETFs: Growth, Innovation, Competition
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ETFs vs. Traditional Mutual Funds
Financial
Crisis
Investors rethink
alpha vs. beta
Increased focus
on investor costs
ETFs: Growth, Innovation, Competition
Non-correlation/
alternatives?
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ETFs vs. Traditional Mutual Funds
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@70% of ETF use by individuals = substitution of
stocks/separately managed accounts, and not of
actively-managed mutual funds
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ETFs: Some competition with certain funds
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Potential competition from ETFs looms:
• Mutual fund firms – pressure to provide/highlight
distinctive advantage of funds
• Even firms not in ETF space must understand it
ETFs: Growth, Innovation, Competition
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US Equity Funds Anchored By Retirement
Investing; Little ETF Share For Now
U.S. Equity Fund Flows
1997 -2007 ($1.7T)
U.S. Equity Fund Assets
12/07 ($7.2T)
Taxable Accounts
Taxable Accounts
28%
38%
62%
72%
Rertirement Accounts
Retirement Accounts
Retirement Accounts
Source: Strategic Insight / ICI
ETFs: Growth, Innovation, Competition
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The Future of ETFs: Outside US
Fast growth in Europe, slower in Asia
Non-US ETF Net Flows 2006-08
30
25
US $Billions
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20
15
10
5
0
-5
-10
-15
Q1'06
Q2'06
Q3'06
Q4'06
Q1'07
Q2'07
Q3'07
Q4'07
Q1'08
Q2'08
Q3'08
Q4'08
Source: Strategic Insight Simfund GL
Asia
Europe/Offshore
ETFs: Growth, Innovation, Competition
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The Future of ETFs
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Additional ETF entrants coming (PIMCO, Schwab, etc.)
New ETPs being launched: More precise slicing of
market; new asset classes – enabling more diversification
Global ETFs/ETNs to Hit $1 Trillion in Assets by 2011
(up from $730B at end-2008)
In The Report: Evolution of Active ETFs; More on
ETFs in DC Plans; More on What Everyone Can Learn
From the Best ETF Marketing
ETFs: Growth, Innovation, Competition
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The Future of ETFs
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Context: Deepening, broadening ETF audience
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Action: How to position within ETFs (Active
ETFs?)
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Action: How to position against ETFs
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In The Report: Whole chapter on competitive
issues; other sections include case studies of
successful ETF businesses, sections on who uses
ETFs & how & why
ETFs: Growth, Innovation, Competition
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New ETF Report On Sale Now
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200 pages
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70+ charts/tables
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Report based on research
using proprietary surveys,
extensive discussions with
industry players, SI’s Simfund
databases, SEC filings.
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Buyers get select quarterly
data updates, consultation
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Questions? Contact
[email protected]
ETFs: Growth, Innovation, Competition
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