Mutual funds and exchange-traded funds continued their steady growth in assets under management in 2010 with Vanguard becoming the world's largest mutual fund manager, according to Pensions & Investments' annual money managers survey.
Worldwide mutual fund assets up 15.3% to $16.8 T
Emerging markets equities big gainer for year; ETF investments rise 36.9% to $1.171 trillion
Total worldwide assets under management in mutual funds — including offshore funds and unit trusts — totaled $16.797 trillion as of Dec. 31, an increase of 15.3% from the end of 2009. That was the first year in which P&I collected data that included the offshore and unit-trust figures.
Total assets under management in mutual funds registered under the U.S. 1940 Investment Company Act rose to $12.093 trillion, a 6.7% increase over the previous year. Internally managed 1940 Act assets rose to $9.644 trillion, an increase of 0.6%.
The percentage gains were higher for exchange-traded fund managers. Total worldwide assets under management in ETFs rose to $1.171 trillion as of Dec. 31, up 36.9% from the previous year. That figure itself was an increase of 45.2% from Dec. 31, 2008, nearly doubling worldwide ETFs in the span of two years.
For mutual funds, global bond and equity funds were key drivers in mutual fund growth, as they were in 2009, according to Loren Fox, New York-based senior research analyst at Strategic Insight, a consulting firm targeting the mutual fund industry.
“Bond funds continued to be extremely dominant because investors continued to remain risk-averse in the wake of the financial crisis. (They were) willing to tiptoe into bond funds, but not willing to make the leap into equity funds,” said Mr. Fox.
The exception to this was international equities, particularly emerging markets, which Mr. Fox said had a record year for mutual fund inflows in 2010.
“I think a part of it was performance chasing because emerging markets had in 2009 and 2010 outperformed domestic equity by a large margin, although that has not been the case (so far in 2011) and part of it was a longer-term trend. Investors in the wake of the crisis realized their portfolio needed to be more global in nature and seeing that, you know, wealth creation is happening in the long run at a fairly significant pace in a lot of emerging markets and that will prove to be the case for the next 10 to 20 years.”
A change in the top mutual fund managers highlighted a year of significant growth.
Vanguard Group Inc., Malvern, Pa., was the top mutual fund manager in terms of worldwide assets, supplanting Fidelity Investments, with $1.553 trillion in worldwide assets, all 1940 Investment Company Act assets, an increase of 23.6% over the previous year. Fidelity was second with $1.371 trillion in worldwide assets, 99.9% of which are 1940 Investment Company Act assets, an increase of 5.6% from the previous year.
“The market is always a key driver. A good percentage of that growth in assets would have come from market appreciation which is always nice to see of course, because our clients are making money,” said Chris McIsaac, principal and head of Vanguard's portfolio review department.
“The balance of the growth would be from cash flow from clients. For the 12 months ended May 31, our clients have invested an additional $80 billion in our funds. We always like to see that,” said Mr. McIsaac.
“I think there's two sorts of twin engines of growth right now,” said Mr. McIsaac. “I think this is probably true across the industry. The popularity of the adoption of ETFs is something we've seen grow. Vanguard has attracted a lion's share of the cash flow in 2010.” Vanguard reported $148 billion in ETFs.
Mr. McIsaac said the second driver is package solutions, the bundling of funds to meet specific needs of clients. “An example is the industry-wide popularity of target-date funds. Our entry is the all-index lineup, the Target Retirement Funds, that's (at) over $100 billion,” he said.
In third place was Capital Research and Management Co., with $1.091 trillion in worldwide assets, all 1940 Act funds, an increase of 4.9% over 2009.
J.P. Morgan reported $714 billion in worldwide assets, including $410 billion, or 57.4%, in 1940 Act assets, a drop of 5.8% from 2009. Assets under the 1940 Act declined 8.6%.
Among ETF managers, BlackRock accounted for slightly over half of all worldwide assets in 2010, at $590 billion. That was an increase of 19.1% over 2009.
As with mutual funds, a particular generator of growth in the ETF industry is emerging markets, according to Michael Latham, San Francisco-based global head of iShares at BlackRock.
“The emerging regions are growing at a rate faster than the developed regions. We have real local exposure, people on the ground both in Latin America and Asia, which is helping us a lot not only sell products in those regions but also build the market,” said Mr. Latham.
Clients are also massively moving into ETFs when compared to indexed mutual funds. “ETFs are really great products,” said Mr. Latham.
“Lastly over the last two years now that we're part of BlackRock (following the firm's acquisition of Barclays Global Investors) we are talking to and having good relationships with almost every significant institution in the world.”
State Street Global Advisors was second among ETF managers, with $255 billion in worldwide assets, up 24.3%.
“More and more investors are using ETFs. Any investors who used them two years ago are using more of them,” said Jim Ross, Boston-based senior managing director and head of global ETF business at SSgA.
“The other thing we see are certain assets classes. On the international side, many investors are using core international emerging markets. We've seen fixed income grow dramatically, (like) high-yield, international Treasury, international TIPS. We see a lot of people trying to diversify their portfolios, and the commodity side as well, broad commodities, specifically metals. Gold is just over $60 billion,” said Mr. Ross.
Mr. Ross also says traditional institutional investors — pension funds, foundations, endowments, etc. — are becoming more attracted to ETFs since the 2008 financial crisis. “They appreciate the fact that ETFs are more liquid. There's a significant premium that liquidity is important to their overall portfolio.”
The top two ETF managers account for 72.4% of all worldwide assets, a decline of nearly 10 percentage points from the previous year. The next two ETF managers in the 2010 survey, Vanguard and Invesco, reported significant increases.
Vanguard reported $148 billion in worldwide ETFs in 2010, an increase of 62% over the previous year and Invesco reported $56 billion, up 271%.
The top five was rounded out by Van Eck Associates, which reported $20 billion in worldwide ETFs. Van Eck was not in last year's listing. n