Volatile equity markets had money managers reporting continued movement away from equity assets in favor of lower-margin fixed-income strategies for the quarter ended June 30, exacerbating pressure on earnings from broader equity market declines.
That trend evoked some heightened rhetorical pushback from leading industry executives such as Laurence D. Fink, BlackRock Inc. chairman and CEO, and Martin L. Flanagan, Invesco Ltd. president and CEO, who both warned that aversion to risk might be prompting investment decisions that could damage institutional and individual retirement portfolios over the long term.
While an 8.9% plunge by the MSCI Europe Australasia Far East index and a 2.8% drop by the Standard & Poor's 500 index in the quarter were bigger factors pressuring income and revenues in the latest round of earnings reports, the continued shift to lower-margin products by gun-shy investors added to the gloom.
There were a few exceptions. Affiliated Managers Group Inc. reported $7.1 billion of net inflows for its equity and alternatives-focused affiliate lineup, and T. Rowe Price Group's equity and blended U.S.-distributed mutual funds garnered $5.3 billion.
A greater number of managers reported more bonds and fewer equities. Among them:
- BlackRock reported inflows of $5.6 billion for its fixed-income strategies and $4.3 billion for its multiasset-class offerings, but outflows of $4.2 billion for its alternative products and $2 billion for its equity strategies.
- Franklin Resources Inc. reported fixed-income inflows of $5.5 billion, but equity outflows of $1.1 billion.
- AllianceBernstein Holding LP reported fixed-income inflows of $4 billion but equity outflows of $7.4 billion.
- Janus Capital Group Inc. reported fixed-income inflows of $1.1 billion, but equity outflows of $5 billion.
- Invesco reported equity and alternatives outflows of $6.1 billion and $1.4 billion, respectively, partially offset by inflows of $2.3 billion for the company's balanced strategies, $200 million for money market products and $100 million for fixed-income offerings.
On a BlackRock earnings call, Mr. Fink argued that institutional investors have become increasingly focused on short-term horizons, pointing to recent reports by major pension funds showing investment gains of 1% against payouts of 7% or more for the year through June 30 as a mathematical time bomb. Although health care has dominated the U.S. political debate, pension shortfalls pose an even greater danger for the country, Mr. Fink warned.
Invesco's Mr. Flanagan, speaking to analysts about his firm's latest results, questioned the counsel he said some investment consultants were giving clients now to ratchet down risk, calling that advice “a day late, and a dollar short.”
David J. Chiaverini, a New York-based analyst with BMO Capital Markets, said the latest round of earnings announcements has done little to dislodge his expectation that the trend of challenged equity flows will persist in the near term.