Transcript Document

Key Trends in
Mutual Fund Innovation:
Beyond Traditional Strategies
Sonia Mata
Senior Research Analyst
[email protected]
Uncertainty, Volatility Drive Search for
“Alternative” Ways to Invest
Selected "Alternative" Strategies in 1940 Act Funds (Ex ETFs)
Category
Alternative Bond
World Allocation
Commodities
Market Neutral
Multialternative
Long/Short Equity
Managed Futures
Currency
Bear Market
Total above
Assets
$B
5/12
116
310
47
20
16
24
9
9
4
555
Assets
% Share
Net Flows $B
5/12
2009 2010 2011 Ytd-5/12 Jan'09 to May'12
95
21%
22 49 25
-2
75
56%
11 27 24
13
37
8%
10 15
9
3
4%
5
7
-1
0
12
3%
2
4
5
1
11
4%
2
3
2
2
9
2%
1
2
4
0
8
2%
-1
1
3
1
5
1%
2
2
0
0
4
100%
54
Source: Strategic Insight Simfund MF, Morningstar, SI
2
110
72
19
255
Close to Half of New Long-Term Open-End Funds
Launched Year-to-Date are “Non-Traditional”
New Long-Term Open-End Mutual Fund Development (Excludes ETFs and VAs)
Number of New Funds Started*
2006 2007 2008 2009 2010 2011 Ytd-5/12
U.S. Stock
109
Balanced Exc. World Allocation
71
World Allocation
3
Int'l/Glbl Stck Excl. Dvsfd EM /China/Latam/Asia Ex Jpn 55
Dvsfd EM / China / Latam / Asia Ex Japan
15
Alternative† / Commodities
17
Subtotal World Alloc, Alternative, and Commodity
20
World Allc, Altrntve, Commodity as % of All LT Fds 6%
100
90
6
62
12
15
97
82
10
71
24
26
73
66
9
41
15
31
109
40
29
59
29
54
130
62
52
70
51
72
38
11
28
22
5
32
21
6%
36
10%
40
14%
83
20%
124
22%
60
36%
Total Equity/Hybrid/Alts/Commodities
270
285
310
235
320
437
136
Taxable Bond: Nontraditional/Multisector/World/EM
Taxable Bond: Other
Subtotal Taxable Bond
Nontraditional/World/EM Bond as % of All LT Funds
14
31
45
4%
17
29
46
5%
19
20
39
5%
13
35
48
4%
35
38
73
9%
47
53
100
9%
12
14
26
7%
Municipal Bond
15
6
6
9
12
15
3
Bond as a % of (All Funds Ex MMFs)
18%
15%
13%
20%
21%
21%
18%
Total Long-Term
330
337
355
292
405
552
165
* Excludes funds that were subsequently liquidated.† Includes Market-Neutral, Long-Short, Multialternative, Managed Futures,
Bear Market, Eqty Precious Metals, and Currency Funds
Source: Strategic Insight Simfund MF; Morningstar (Categories); SI
Rethinking the Traditional 60/40
“Balanced” Portfolio
 The “Core” of Investors’ Portfolios increasingly Global
and Risk Managed
 Developed markets no longer the only anchor of the
“Core”: Emerging Markets shift from the periphery
towards the center
 Changes in the Bond landscape drive shifts in the fixed
income component
 The new “cores” increasingly include allocation to NonTraditional asset classes and may incorporate NonTraditional Strategies
Post-Crisis Move Towards Portfolio
Construction “Solutions”

US vs. International Exposure

Developed vs. Emerging Markets

Dollar vs. Non-Dollar

Traditional vs. Alternative Asset sleeves

Long-only fully invested vs. Incorporating Short
Positions and Cash
More complexity drives advisers to seek “solutions” in
the form of Global Tactical Asset Allocation (GTAA)
funds or single asset-class Absolute Return-oriented
unconstrained Strategies.
Global Asset Allocation Funds Flow Pace
Accelerates in 2012
Net Flows into Global Asset Allocation* Funds, $B
45
40
35
30
25
20
15
10
5
0
-5
-10
/12
Ytd-5
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
* Excludes lifecycle funds. Source: Strategic Insight Simfund MF
GAA: Significant Presence in Top Selling
Equity Funds over Trailing 3 Mths as of 5/2012
Top Selling Active Open-End Eqty/Hyb Funds over Trailing 3 Mths-5/12
Portfolio
Name
PIMCO All Asset All Authority
JPMorgan Large Cap Growth
PIMCO Intl Fdmtl Idx+ TR Strat
MFS Value
T Rowe Price InstlLgCpGro
Invesco Balanced Risk Allocation
BlackRock Equity Dividend
PIMCO CommditiesPlus Strtgy
PIMCO All Asset
First Eagle Global
Morningstar
Category
World Allocation
Large Growth
Foreign Large Blend
Large Value
Large Growth
World Allocation
Large Value
Commodities Brd Bskt
World Allocation
World Allocation
Source: Strategic Insight Simfund MF
Start
Year
2003
1992
2011
1996
2001
2009
1987
2010
2002
1969
Assets
$B
Net Flows $B
5/12 2011 Ytd-5/12 3 Mth-5/12
18.8 5.8
4.0
2.5
6.2 -0.1
3.1
1.9
2.2
0.0
2.0
1.8
19.0 2.1
1.9
1.8
5.0
0.5
1.6
1.6
6.1
0.5
2.8
1.5
20.7 3.2
2.9
1.5
4.1
0.8
1.9
1.3
27.3 3.3
2.0
1.3
33.0 2.3
1.9
1.2
Total Return %
2011 Ytd-5/12
3.01 3.43
2.90 8.29
-2.62
-0.21 4.00
-1.40 8.37
10.30 3.29
5.60 2.23
-2.93 -5.96
2.44 2.70
-0.19 0.13
GAA also an Area of Vibrant Innovation
Top Selling Global Asset Allocation* Funds over Trailing 3 Mths-5/12
Portfolio
Name
Assets
Total 3 Yr Beta
Start
$B
Net Flows $B
Rtn %
Against
Year 5/12 2011 Ytd-5/12 3 Mth-5/12 Ytd-5/12 S&P 500
PIMCO All Asset All Authority
2003
18.8 5.1
Invesco Balanced Risk Allocation
2009
6.1
2.2
PIMCO All Asset
2002
27.3 5.4
First Eagle Global
1969
33.0 5.4
Permanent Portfolio
1982
17.0 5.3
Wells Fgo Avtg Absolute Return
2012
0.5
BlackRock Global Allocation
1989
51.7 4.2
Marketfield
2007
1.7
0.4
Old Westbury Global Opport
2007
5.1
0.2
Thornburg Invest Inc Builder
2001
10.3 2.6
* Excludes lifecycle funds. Source: Strategic Insight Simfund MF
4.0
2.8
2.0
1.9
1.6
0.6
0.6
0.7
1.2
0.7
2.5
1.5
1.3
1.2
0.7
0.6
0.5
0.5
0.4
0.3
3.43
3.29
2.70
0.13
0.15
n.a.
0.77
7.85
2.65
-0.62
0.43
n.a.
0.54
0.67
0.43
n.a.
0.56
n.a.
n.a.
0.82
Pre-Packaged AA Funds Witness Accelerating
Flow Pace, in Aggregate, YTD in 2012
Flows into Asset Allocation Funds
$B
100
80
Lifecycle Programs
Other Specialized Strategies
60
40
20
0
-20
-40
200
200
200
200
200
200
200
200
200
201
201
0
1
2
3
4
5
6
7
8
9
0
1
5/12
Ytd-
200
Source: Strategic Insight Simfund MF
Bond Fund Sales Explode in a Historically
Low Interest Rate Environment
All Bond Fund New Sales vs. Interest Rates
1984 - April 2012
New Sales, $B
120
110
100
90
80
70
60
50
40
30
20
10
0
Rates, %
14
30 Yr T Bond Yield
12
30 Year T-Bond
New Sales
(Left Axis)
10
8
6
90 Day T-Bills
4
2
0
2
2011
2010
2019
2008
2007
2006
2005
2004
2003
2002
2001
2000
2009
1998
1997
1996
1995
1994
1993
1992
1991
1990
1999
1988
1987
1986
1985
1984
198
Source: Strategic Insight Simfund / ICI Trends; The Federal Reserve
30 Yrs of Falling Interest Rates Drove Extraordinarily
Dependable Bond Fund Performance in Many Market
Environments; Prospect of Secular Shift in Trend Drives
Wave of Innovation
Asset Weighted Average Annual Total Return
All Equity Funds vs. All Bond Funds
%
40
Equity
%
40
Bond
30
30
20
20
10
10
0
0
-40
-50
-50
Source: Strategic Insight Simfund MF
2009
2010
2011
YTD
5/20
12
-40
2005
2006
2007
2008
-30
2001
2002
2003
2004
-30
1997
1998
1999
2000
-20
1993
1994
1995
1996
-20
1989
1990
1991
1992
-10
1985
1986
1987
1988
-10
Non-Traditional Bond Strategies: A Secular
Innovation Theme though Flows Slowed after
1H11
Top Selling Non-Traditional Bond Funds over Trailing 3 Mths-5/2012
Portfolio
Name
Templeton Global Total Return
Eaton Vance GlblMac Abslt Rt
Forward Credit Analysis Long/Short
BlackRock Global Long/Short Credit
BlackRock Strtgc Inc Opp
Federated Unconstrained Bond
Guggenheim Macro Opportunities
MainStay Hi Yield Opp
Driehaus Select Credit
DWS Unconstrained Income
Source: Strategic Insight Simfund MF
Start
Year
2008
2007
2007
2011
2008
2010
2011
2008
2010
1977
Assets
$B
Net Flows $MM
5/12 2011 Ytd-5/12 3 Mth-5/12
3.6
1,824
384
269
6.5 -1,265 251
198
0.4
32
154
129
0.2
63
129
87
2.9
1,424
25
85
0.2
74
88
57
0.1
11
69
49
1.0
237
75
37
0.3
164
79
26
0.5
-27
44
24
Total Return %
2011 Ytd-5/12
-1.08
1.33
-0.68
0.68
5.83
8.51
n.a.
1.48
-0.73
3.71
6.44
0.38
n.a.
5.18
-1.15
6.23
-2.74
4.66
4.74
4.03
EM Stock Investing: Still High Risk Aversion + Intermittent
Spikes in Global Stock Market Volatility + Many EM Fund
PMs Facing Capacity Limitations ----˃ Sparks Balanced EM
Fund Innovation
Diversified Emerging Market Equity Funds'
Share of Total Equity Fund Flows
100%
90%
80%
70%
57%
60%
50%
40%
30%
20%
10%
12%
4%
0%
2003-05
Source: Strategic Insight Simfund MF
2006-08
2009-11
Commodities Funds: Accelerating Flows Post-Crisis
into ’40 Act Funds Providing Diversified Exposure;
Budding Active, Long-Short Category
Net Flows into Commodities Mutual Funds and ETPs
$ Billion
35
30
ETPs
Conventional Funds
25
20
15
10
5
0
-5
2003
2004
2005
Source: Strategic Insight Simfund MF
2006
2007
2008
2009
2010
2011
Ytd5/12
Newly Launched Equity/Hybrid Funds
Gaining Flows: Evolving Themes
 Global Flexible AA
 Multi-alternative, Long-Short / Market-Neutral
 Global Income-focused Equity and Multi-Asset
 Diversified EM
 Large-Cap US/Foreign Equity
 MLP / Global Real Estate
New Active Equity/Hybrid Open-End Funds
Gaining Traction
Active Open-end Eqty/Hybrid Fds Started Over Past Year: Top Sellers over Trailing 3 Mths
Open-End Funds; Excluding VAs
Portfolio
Morningstar
Name
Category
PIMCO Intl Fdmtl Idx+ TR Strat
Foreign Large Blend
Wells Fgo Avtg Absolute Return
World Allocation
GMO Intl Intrinsic Val Ext Mkts
Foreign Large Value
PIMCO EqS Dividend
World Stock
PIMCO EqS Long/Short
Long/Short Equity
Transamerica Tactical Income
Conservative Allocation
Palmer Square SSI Alternative Inc
Market Neutral
AQR Multi-Strategy Alternative
Multialternative
SEI SIMT Multi-Asset Accumulation
World Allocation
Touchstone Merger Arbitrage
Market Neutral
Source: Strategic Insight Simfund MF
Start
Year
2011
2012
2012
2011
2012
2011
2012
2011
2012
2011
Assets
$B
5/12
2.2
0.5
0.3
0.3
0.2
0.3
0.2
0.5
0.8
0.2
Total
Net Flows $MM
Rtn %
2011
Ytd-5/12 3 Mth-5/12 Ytd-5/12
380
1,972
-2.62
1,801
565
n.a.
565
289
n.a.
289
54
248
0.22
246
217
2.53
217
7
272
1.38
214
159
n.a.
159
307
181
0.82
122
116
n.a.
116
54
158
1.84
114
Types of New Bond Funds Gaining Traction
 Short / Ultrashort Bond
 Flexible Global Bond
 Floating Rate Loan
 High Yield Bond
 Intermediate Investment Grade
 Emerging Market Debt
Successful New Active Bond Open-End
Funds
Active Open-end Bond Funds Started Over Past Year: Top Sellers over 3Mths-5/12
Open-End Funds; Excluding VAs
Portfolio
Name
PIMCO Senior Floating Rate
Fidelity Conservative Income Bond
DFA Investment Grade
JPMorgan Floating Rate Income
BNY Mellon Corporate Bond
Amer Beacon SiM High Yield Bond
PIF Ultrasht Dur Bond
Lord Abbett Inflation Focused
Hartford World Bond
Pioneer Multi-Asset Floating Rate
Source: Strategic Insight Simfund MF
Morningstar
Category
Bank Loan
Ultrashort Bond
Intermed-Term Bond
Bank Loan
Intermed-Term Bond
High Yield Bond
Ultrashort Bond
Inflation-Protcd Bond
World Bond
Ultrashort Bond
Start
Year
2011
2011
2011
2011
2012
2011
2012
2011
2011
2011
Assets
$B
5/12
0.8
1.4
0.6
0.7
0.1
0.2
0.1
0.3
0.3
0.2
2011
277
693
273
469
40
140
106
95
Total
Net Flows $MM
Rtn %
Ytd-5/12 3 Mth-5/12 Ytd-5/12
475
2.35
464
658
0.71
369
361
2.90
182
241
2.95
153
147
147
183
5.27
139
127
127
141
3.82
125
193
3.06
123
142
1.21
123
Appendix
Top 10 Selling Active US Equity/Hybrid Funds over Trlg 3 Mths Prominent Themes are Large-Cap, Relatively Concentrated Style
Box Portfolios; Income-focused Stock and Multi-Asset
Top Selling Active US Equity/Hybrid Funds over Trailing 3 Mths-5/2012
Portfolio
Name
JPMorgan Large Cap Growth
MFS Value
T Rowe Price InstlLgCpGro
BlackRock Equity Dividend
PIMCO CommditiesPlus Strtgy
Vanguard Wellesley Income
Vanguard Wellington
MainStay Large Cap Growth
Harbor Capital Appreciation
Yacktman Focused
Morningstar
Category
Large Growth
Large Value
Large Growth
Large Value
Commodities Brd Bskt
Conservative Allocn
Moderate Allocation
Large Growth
Large Growth
Large Blend
Source: Strategic Insight Simfund MF
Start
Year
1992
1996
2001
1987
2010
1970
1929
1995
1987
1997
Assets
$B
Net Flows $B
5/12 2011 Ytd-5/12 3 Mth-5/12
6.2
2.4
3.1
1.9
19.0 0.4
1.9
1.8
5.0
0.7
1.6
1.6
20.7 5.5
2.9
1.5
4.1
1.7
1.9
1.3
29.3 5.0
2.6
1.0
59.3 -0.2
1.9
1.0
16.3 8.1
2.0
1.0
15.3 1.6
1.8
0.9
6.0
2.2
1.5
0.8
Total Return %
2011 Ytd-5/12
2.90
8.29
-0.21
4.00
-1.40
8.37
5.60
2.23
-2.93 -5.96
9.63
3.13
3.85
3.18
-0.48
5.54
0.61
9.13
7.41
1.97
Top 10 Selling Active Intl/Glbl Equity/Hybrid Funds
3 Mths-5/12: GAA and Diversified EM Equity are
Prominent Themes
Top Selling Active Open-End Intl/Glbl Eqty/Hyb Funds over Trailing 3 Mths-5/12
Portfolio
Name
PIMCO All Asset All Authority
PIMCO Intl Fdmtl Idx+ TR Strat
Invesco Balanced Risk Alloc
PIMCO All Asset
First Eagle Global
Oppenheimer Developing Mkts
DFA Emerging Markets Core Eqty
Harbor International
Virtus Emerging Mkts Opp
Permanent Portfolio
Morningstar
Category
World Allocation
Foreign Large Blend
World Allocation
World Allocation
World Allocation
Diversified Emerg Mkts
Diversified Emerg Mkts
Foreign Large Blend
Diversified Emerg Mkts
Conservative Allocation
Source: Strategic Insight Simfund MF
Start
Year
2003
2011
2009
2002
1969
1996
2005
1987
1997
1982
Assets
Net Flows $B
$B
5/12 2011 Ytd-5/12 3 Mth-5/12
4.0
18.8 5.1
2.5
2.0
2.2 0.4
1.8
2.8
6.1 2.2
1.5
2.0
27.3 5.4
1.3
1.9
33.0 5.4
1.2
2.4
22.9 3.0
1.1
1.7
7.1 2.1
1.0
1.6
31.4 0.8
1.0
1.3
3.9 1.6
0.8
1.6
17.0 5.3
0.7
Total Return %
2011 Ytd-5/12
3.43
3.01
-2.62
10.30 3.29
2.70
2.44
0.13
-0.19
-18.10 2.25
-20.65 0.70
-11.13 1.35
3.10
-2.92
0.15
2.13
Top Selling Active Open-End Bond Funds over
3 Mths-5/12
Top Selling Active Open-End Bond Funds over Trlg 3 Mths to 5/2012
Portfolio
Morningstar
Name
Category
DoubleLine Total Return Bd
Intermd-Term Bond
PIMCO Total Return
Intermd-Term Bond
Lord Abbett Short Dur Inc
Short-Term Bond
JPMorgan Core Bond
Intermed-Term Bond
PIMCO Income
Multisector Bond
Vanguard Shrt Inv Grade
Short-Term Bond
MetWest Total Return Bond
Intermed-Term Bond
PIMCO High Yield
High Yield Bond
PIMCO Emerging Local Bond
Emerg Markets Bond
MFS Emerging Markets Debt
Emerg Markets Bond
Source: Strategic Insight Simfund MF
Start
Year
2010
1987
1993
1991
2007
1982
1997
1984
2007
1998
Assets
$B
5/12
25.4
260.9
20.7
26.5
8.9
39.4
20.5
16.8
12.0
4.9
2011
10.7
-6.2
4.9
2.7
3.0
-1.4
5.3
2.7
4.0
0.4
Net Flows $B
Ytd-5/12 3 Mth-5/12
9.4
5.0
4.7
3.5
3.6
2.4
2.9
1.6
1.9
1.4
1.8
1.3
2.1
1.1
2.3
1.0
1.7
0.9
1.3
0.9
Total Return%
2011 Ytd-5/12
9.51
4.21
4.16
5.27
3.16
2.45
7.30
2.83
5.95
7.01
1.93
1.98
5.19
4.55
4.00
4.37
-0.79
1.70
5.84
4.08
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