Shifting Sands in Asset Management
'Irreversible Decline'
Mutual funds are losing market share, and it's not just ETFs that are elbowing in.
Results of a?Broadridge?survey involving 40 million U.S. households show that over the past 5 years, the proportion of assets allocated to mutual funds?fell by 15 percentage points?to just 38%.
ETFs, meanwhile, saw their market share grow. Such products now control about 23% of assets among the survey base, up 5 percentage points from 2018.
But it's stocks that seem to be having a moment. Individual equity holdings had edged out mutual funds for the first time, representing 39% of the survey base's assets. That's a 10 point jump from five years ago, according to Broadridge.
Don't be too quick to blame meme stocks. Broadridge VP of global insights?Andrew Guillette?told Ignites that separate accounts and direct indexing may be at play. Both allow investors to hold stocks directly.
Mutual funds, however, face an "irreversible decline."
And that puts pressure on asset managers' margins, even if they offer structures like separate accounts, direct index strategies and collective investment trusts.
Direct indexing was once available only to big-book advisors catering to clients who could put hundreds of thousands toward a single strategy. But such strategies have come down market, fast.
Among advisors with books of between $50 million and $200 million surveyed by?FTSE Russell, 59% said they plan to use direct indexing strategies within the next one to five years.
And 66% of those with $50 million or less in client money said they expect to be using such strategies within five years.
But managers have some operational educational hurdles to clear first,?Ryan Sullivan, head of buyside, Americas at FTSE Russell, told Ignites.
Customization and tax-loss harvesting are among the more attractive elements of direct indexing. But that's only part of the story. Advisors are on the hunt for yield in places other than plain old stocks, and they are not looking to long-only open-end funds.
Capital Group, the parent to?American Funds, last week announced a?partnership?with private markets powerhouse?KKR?aimed at addressing this interest. Details of the forthcoming "public/private" strategies are scant for the time being, other than they will include private credit exposure, the companies said.
Efforts to tap into less liquid markets have?spawned?a series of interval funds in the past few years.
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Save the Date: September 25-26
Future of Asset Management North America?returns to NYC in September with engaging sessions exploring key trends, a speaker lineup of the industry's top leaders and various networking opportunities. Early-bird passes are available?here.
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