The Markets October 6, 2009

Bond Funds Continue to Dominate Fund Flows

Strong long-term fund flows persisted in August, and the recent pattern of greater flows into bond funds continued as well, according to Strategic Insight (SI).

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Investors deposited $43 billion into bond funds and $12 billion into equity/hybrid funds over the month. U.S. Equity funds saw $4 billion of inflows in August, while International/Global Equity posted $47 billion in inflows, according to data from SI, which is owned by Asset International, the parent company of PLANADVISER.

Taxable bond funds collectively garnered $33 billion, while flows into U.S. Government Bond funds rose from the prior month’s $3.5 billion, to $5 billion. Flows into Inflation-indexed Bond funds remained strong and steady at $2.6 billion, as did those into multi-sector Strategic Income funds, at $1.5 billion. Expectations of further U.S. dollar weakening aided in more than doubling flows into Global Bond funds, to $4.5 billion.

However, in a switch from the experience in the prior month, international equity funds lagged U.S. equity funds in August in terms of asset-weighted average returns and ended up drawing a smaller percentage of total equity fund flows (about 60% in August, down from about 75% in July).

Flows into International/Global Equity funds slowed somewhat compared to July, primarily as a result of investors pulling back from diversified Emerging Market and China Region funds following slowing growth, according to SI. August’s international/global equity fund flows came almost entirely within actively managed funds.

Money-market mutual fund assets declined by another $45 billion or so in August as a result of continued shifts to higher-yielding investments. Flows into both lifecycle strategy and other kinds of funds-of-funds remained steady, bringing in $5.3 billion collectively. Year-to-date, funds-of-funds have brought in a total of $27 billion in net new cash flows.

ETF/ETN flows moderated in August, to $7 billion, driven by Dedicated Short-Bias, Commodities, Small-cap Core, and Real Estate products. Year-to-date through August, ETFs/ETNs have collectively drawn an estimated $55 billion in net new flows.

The SI data showed that among the largest firms (more than $20 billion in long-term fund assets under management), those garnering the most long-term fund flows were Vanguard ($11 billion), PIMCO/Allianz Global ($8.7 billion), Fidelity ($3.4 billion), JPMorgan Funds ($2.6 billion), Barclays Global Investors ($2.2 billion), Franklin Templeton ($2 billion), DFA ($1.9 billion), SSgA ($1.7 billion), and BlackRock ($1.5 billion).

Among smaller-size managers of long-term funds, those that led in total long-term fund flows in August were TCW, Rafferty Asset Management, Manning & Napier, Lazard Asset Management, Rydex Investments, and InvescoPowerShares.

SI’s “Highlights of August 2009 Mutual Fund Industry Results” is available to registered users at www.sionline.com.

Deals & People October 6, 2009

Citi Advisers Will Switch to Fee-Only, Partner with RIAs

Citi announced that financial advisers at Citibank branches will no longer provide commission-based transactions.

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Citi said advisers in its retail investment unit Citi Personal Wealth Management will provide fee-only investment advisory services. “This model is where the market is headed and it will help us offer clients greater flexibility, transparency, and meaningful investment choices,” said Terri Dial, head of North America Consumer Banking and Global Consumer Strategy.

Furthermore, Citi said it will work with independent registered investment advisers (RIAs) to complement its services and cover more geographic area. The bank said it is in discussion with independent RIAs and expects to announce agreements over the next several months.

“We also expect to recruit advisers at other firms who are considering becoming independent investment advisers, as this will be an appealing alternative for many of them,” said Deborah McWhinney, head of Citi Personal Banking and Wealth Management.

As part of the shift to a fee-only business model, Citi Personal Wealth Management will also offer clients access to an open platform designed to support the fee-based business, the bank said. By 2011, Citi hopes to eliminate commission-based compensation to its advisers, transition advisers to function solely as investment advisory representatives, and establish agreements with independent RIA firms around the country.

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