The Markets May 29, 2012

Institutional Investor Allocations to Real Assets to Rise

The institutional investor mindset toward real assets is shifting significantly, according to research.
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A research paper from J.P. Morgan Asset Management forecasts that institutional investor allocations to real assets will rise, from their current average of roughly 5% to 10%, to more than 25% of portfolios in the next decade. J.P. Morgan predicts real assets will move from an alternative to a mainstream asset class.  

Low bond yields, along with outsized equity market volatility and modest equity returns, have brought us to a new asset allocation tipping point, the paper said. Global real assets—real estate, infrastructure, transport and natural resource assets that can provide higher income than bonds and superior risk-adjusted returns to equities—will increase in size and importance in investor portfolios.  

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Joe Azelby, chief executive of Global Real Assets at J.P. Morgan Asset Management, and co-author of the paper, is calling the shift “the realization,” as institutional investors are undergoing a structural shift realizing they will not be able to achieve the returns they need from fixed income and becoming increasingly disillusioned with equities, given the volatility and stunted returns of stocks over the last decade. Azelby thinks investors will be lured by the solid yields, stable total returns, inflation sensitivity and attractive diversification of real assets, causing them to fundamentally rethink portfolio construction.    

The paper contends that investors who recognize and act on this realization in their portfolio allocations are likely to have better investment outcomes than those who do not.  

The research paper will be distributed to J.P. Morgan institutional clients. More information is here.  

 

Products May 29, 2012

Morningstar Expands Databases to Help with Fee Disclosure

Morningstar expanded and standardized its managed product databases to help retirement plan advisers and sponsors comply with new participant fee disclosure requirements.
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Morningstar increased the number of strategies it tracks, as well as the data it collects in its collective investment trust, open-end mutual fund, money market fund, exchange-traded fund (ETF), and private fund database, which includes custom target-date funds.  

“More and more defined contribution plans are offering participants an array of investment vehicles, such as custom target-date funds, collective investment trusts, and ETFs in their plan lineups,” said Mary Beth Glotzbach, senior vice president of institutional software for Morningstar. “While these vehicles offer benefits, they can make comparison difficult for investors. In addition, plan participants may not be aware of the variety of administrative fees they pay.” Glotzbach said their goal is to help plan sponsors comply with the Department of Labor requirements and give investors more transparency around fees, improve access to information and give consistent presentation of information across investment types.  

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Under the 404(a)(5) regulation, plan sponsors have until August 30 to provide participants with standardized information about the fees paid for management and administration of the plan, investments and optional services, like managed accounts. To help companies comply, Morningstar is collecting and calculating new data points across managed product databases, including principal risks from fund prospectuses, since inception benchmark and category returns, gross and net operating expenses, turnover ratios and glide paths. Morningstar has also standardized data collection and calculations across both registered and unregistered investments to ensure consistency.   

As of March 31, Morningstar tracked 124,900 mutual fund share classes; 9,400 ETFs; 9,800 separate accounts and collective investment trusts; and 7,000 private funds. 

 

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