The Markets December 16, 2013

ETFs, Mutual Funds Earn $2T

Improving stock markets and strong inflows helped investors in stock mutual funds and exchange-traded funds (ETFs) earn nearly $2 trillion during 2013.
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Data from Strategic Insight, an Asset International company, shows since November 2008, mutual fund investors have deposited a net of nearly $1.9 trillion into stock and bond mutual funds and ETFs. With the recovery of the financial markets over the past five years, mutual funds investors benefitted from close to $6 trillion of wealth added to their holdings during this period, about one-third of which occurred in 2013.

“For 2014, we should witness the continuation of investors’ re-engagement,” says Avi Nachmany, Strategic Insight’s director of research. “And demand should remain across a wide spread of investment approaches, including many bond funds, as the fund industry’s DNA of asset allocation dictates diversification across strategies and around the world.”

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Approximately $30 billion was net deposited into long-term stock and bond funds (including ETFs) in November. Equity mutual funds and ETFs collectively brought in $43 billion in November, while bond mutual funds and ETFs experienced $13 billion of net redemptions. For all of 2013, taxable bond flows remained positive at $46 billion, while tax-free bond funds experienced nearly matching net redemptions.

Excluding ETFs, equity funds netted $31 billion in November and $281 billion in 2013, due to strong demand in both domestic and international strategies. Growth and income, international growth, international total return, and emerging market equity have been the best-selling equity objectives in 2013. Aggregate inflows to diversified international/global funds in 2013 exceeded the amount garnered by such funds over the past four years combined. Similar to recent months, bond fund strategies positioned for a rising interest rate environment, such as floating rate, short maturity, unconstrained, and high yield, continued to benefit from positive flows.

Fidelity, Vanguard and DFA led monthly net inflows in domestic and international equity funds, including active and passive mutual funds, but excluding ETFs. Edward Jones, Vanguard and DFA were the monthly flow leaders for bond funds during November.

U.S. equity exchange-traded products, or ETPs, (including ETFs and exchange-traded notes) netted $12 billion during November. Growth and income, international growth and miscellaneous sectors were the leading equity objectives in ETP flows in November. Corporate short maturity, corporate floating rate, and government short maturity stood out as leading bond ETP objectives in November, each bringing in hundreds of millions in net new flows.

“The 2013 flows to ETPs could near $200 billion, as December is likely to experience increased flows due to year-end tax-driven rebalancing into ETFs,” says Alan Hess, a Strategic Insight analyst. “ETP assets could break the $2 trillion mark by year-end 2014.”

Year to date through October 2013, intermediary-sold (including private bank, independent, regional, RIA, and most wirehouse broker/dealers) channels aggregately drove $247 billion of equity mutual fund and ETF inflows. Approximately 60% of inflows went into actively managed equity funds for the year-to-date period, but passive strategies took in about 60% of inflows into equity funds held by intermediaries within the month of October.

Distribution channel data attributed to Strategic Insight Simfund Pro 7.0 and Access Data, a Broadridge company. More about Strategic Insight is at www.sionline.com.

Data & Research December 16, 2013

Recruiting Worries as Boomers Retire

Worries about recruiting and training new talent, as more Baby Boomers retire, top the list of challenges facing plan sponsors and advisers of 403(b) plans.
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While nearly seven in 10 (69%) plan to replace the majority of Boomer-aged retirees, well over a third (38%) of 403(b) plans expect to face significant challenges in doing so, according to a new survey of 403(b) plan sponsors from the Plan Sponsor Council of America (PSCA) and the Principal Financial Group.

Issues in retirement benefit delivery could mean wider problems for the nonprofit institutions that traditionally provide 403(b) plans as a means of attracting top-quality workers, survey authors argue. 

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“Many nonprofit organizations rely heavily on 403(b) plans—instead of salaries—to compete for the best employees,” says Bob Benish, executive director of PSCA. “We’ve seen 403(b) plans improve dramatically over recent years. It is clear those plans will be increasingly important in the race for high performers, especially in higher educational institutions.” 

Other survey results show more than half of all 403(b) sponsor respondents (54.4%) expect between 10% and 20% of their work force to retire over the next five years.

However, 20% of larger organizations (500 or more employees) expect to lose one-fifth of their work force to retirement. Most are higher educational institutions, according to the survey, where a spike in hiring professors in the 1970s and 1980s is leading to a significant number of potential retirements in the near future.

“As a generation of academics nears retirement, financial professionals have another reason to focus on higher education as an opportunity to grow their business,” says Aaron Friedman, national tax-exempt practice leader for The Principal. “Financial professionals who can help enhance plan designs—making plans more successful and therefore better appreciated by employees—stand to position themselves well in this burgeoning nonprofit marketplace.”

In addition to concerns over recruiting, survey respondents say the other top anticipated challenges include:

  • An increased need for training (42.7%);
  • Skill gaps in the workforce (39.9%);
  • The reallocation of responsibilities causing a burden on remaining employees (38.1%); and
  • Increased use of technology (33.5%).   

While seven out of 10 plan sponsors believe planning for retirement is the employees’ responsibility, slightly less (66.8%) are active in providing retirement planning education tool and materials. For larger organizations, 90% of plan sponsors are active in employee retirement planning education.

“403(b) sponsors recognize the need to both encourage employees to accept responsibility to prepare for their own retirement and at the same time help them prepare for the transition,” Benish says. “That is important because while employees generally expect to work into their 60s, studies consistently show many end up retiring before they planned, often due to health reasons.”

Survey results are available at http://www.psca.org/403-b-plan-research.

The PSCA is a national nonprofit association of 1,200 companies and their six million employees. The group advocates for increased retirement security through defined contribution (DC) programs to federal policymakers.

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