October 21, 2016

The State of Asset Management: A Focus on Asset Management Firms

by Thomson Reuters Exchange

Investor view: On average, the top 50 fund-manager stocks (by market cap) have fallen 2.1% since the start of the year. This compares to the S&P 500, up 6% since the start of the year.

Analyst opinion: Thomson Reuters StarMine® data reveal for these same 50 firms, there have been more analysts revising earnings estimates lower (431) – compared to just 71 estimates revised higher. There are fewer strong buy (93 vs. 110) and buy (174 vs. 205) and hold (249 vs. 266) recommendations now than there were at the beginning of the year. There are more sell (58 vs. 48) and strong sell (9 vs. 5) now than there were at the beginning of the  year.

Industry leadership commentary: Transcripts from Thomson Reuters Eikon™ reveal how top asset management executives see the markets and industry landscape at midyear.

Gary Shedlin, BlackRock CFO on July 14 conference call:

“Clients are struggling to navigate an incredibly difficult investment landscape. Notwithstanding the recent market rally over the last 12 months, many global equity markets were down double-digits and interest rates touched historic lows worldwide. The current macro environment including negative yields in many jurisdictions, Brexit and the US election uncertainty is causing clients to defer investment decisions resulting in significant increases in global cash balances, lower active flows and a shift from equity to fixed-income assets.

“This environment is also resulting in lower revenue capture across the asset management industry. In times like this, growing and evolving our business are critically important, as client needs for our investment advice and risk management capabilities are greater than ever. BlackRock is having richer dialogues with clients than in any time in our history, and we are well-positioned for growth when client activity accelerates.”

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Steve Schwarzman, Blackstone Group LP Chairman and CEO on earnings call:

“The global, European and Asian equities indices all ended the quarter in negative territory, with some markets down as much as 15%. Developments in the debt market were even more extreme; with high-yield spreads gapping out to over 900 basis points in early February, the highest since 2009, with a dramatic decline in liquidity. Even in volatile times, in fact especially so, limited partner investors are seeking the types of returns we can offer with our products, which helped drive our AUM up over 11% to a record $344 billion at the end of the quarter. But we are not immune to market movements in terms of marks to the portfolio. Our largely locked-in capital, and our ability to affect change, gives us tangible advantages in ultimate fund performance. We are patient investors, both in terms of when we decide to invest and when we exit.”

“The market tantrum in the first part of the year resulted in lots of dislocation, some of which is normalized, some of which is not. For example, many hedge funds were caught wrong-footed in a classic short squeeze when the markets rebounded in March. Segments of the debt market still remain under considerable pressure. Investment sentiment is fragile and characterized by significant caution around choppy economic data, negative rates, political rhetoric and other factors. How can investors generate sustained, positive returns against this type of turbulence?”

Thomson Reuters Lipper Global Fund Market Data (as of June 30, 2016)

Fund Market Overall

Assets under management in the global collective investment funds market grew by US$188.8 billion or 0.5% in June and stood at US$36,157 billion at the end of the month. Estimated net outflows accounted for US$27.8 billion, while US$216.6 billion was added due to positively performing markets.

On a year-to-date basis, assets increased by US$998.9 billion or 2.8%. Included in the overall year-to-date asset change figure are US$9.6 billion estimated net outflows. Compared to a year ago, assets decreased by US$122.0 billion or minus 0.3%. Included in the overall one-year asset change figure are US$467.7 billion estimated net inflows.

The average overall return in US$ terms was positive with 0.4% at the end of the reporting month, outperforming the 12-month moving average return by 0.7% and outperforming the 36-month moving average return by 0.3%.

Fund Market by Asset Type Year to Date

In a year-to-date perspective, most net new money has been attracted by Bond Funds accounting for US$202.9 billion, followed by Commodity and Other Funds with US$22.3 billion net flows and US$6.1 billion, respectively. Equity Funds were on the bottom of the table with -US$115 billion, followed by Money Market and Mixed Assets Funds with -US$89.3 billion and -US$43.3 billion net flows. Best performing funds year to date have been Commodity Funds with 13.7%, followed by Bond and Mixed Assets Funds with 5.7% and 4.7% average return. Alternatives Funds performed worst with -0.1%, followed by Other and Money Market Funds, both with 1.6%.

Fund Classification Year to Date

Looking at fund classifications year to date, most net new money flew into Bond US$ Medium Term with US$57.5 billion followed by Equity Global ex US and Bond Municipal with US$39.7 billion and US$33.1 billion. The largest outflows took place in Money Market with -US$57.5 billion followed by Equity US and Money Market CNY with -US$55.1 billion and -US$49.7 billion.

 

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