Volatility has been in decline during the third quarter, and riskier asset classes such as emerging markets, small-cap equities and global equities have seen a rally, boosting publicly traded money managers, said a new report on U.S. asset managers from Moody’s Investors Service.
Although the report suggests that risks remain, the relative strength of the U.S. economy has given rise to strong markets and an increasing appetite for both riskier — as well as non-risky — assets. In the third quarter to date through Aug. 19, net flows into equity products are improving, Moody’s said. Fixed-income inflows remain strong, but investors’ appetite is increasing for high yield and emerging markets debt. Moody’s expects this trend to continue through the rest of the third quarter.
Since the first quarter of 2015, volatility has spiked sporadically, culminating in the market sell-off following the Brexit referendum on June 23. For much of the past year, monetary policy has dominated the conversation, and low or negative policy rates have driven a rally in yield-oriented assets, such as dividends, fixed income and real estate, the report said.
As a result, investors responded with caution, moving money toward taxable and municipal fixed income.
This changed in the third quarter. Volatility has collapsed and riskier asset classes are now rallying.
Moody’s report also shows that improving macroeconomic stability supports third-quarter growth for asset managers. Consumer spending in the U.S. increased 4.2% in the second quarter, while unemployment remained low at 4.9% and wages increased more than expected. Headwinds to emerging markets have also moderated.
Total assets under management for publicly traded managers rose 2.7% in the second quarter from the first as domestic equity indexes finished higher. However, AUM was down 1.8% compared to a year ago, influenced by large asset declines at Franklin Resources and Waddell & Reed.
Revenues also rallied, up 10.6% in the quarter, as alternative managers’ performance fees recovered sharply. Declining money market fee waivers and new M&A also added to revenue growth.