Funds Worldwide See $665B Inflow in 2013

During the first half of 2013, investors globally contributed $665 billion of net inflows to funds worldwide excluding money markets.

This was despite net redemptions towards the end of the second quarter, according to Strategic Insight (SI), an Asset International company. SI data shows outflows from long-term funds in June exceeded $120 billion worldwide, though this represented less than 0.5% of assets under management.

The majority of cash so far this year has gone into funds outside the U.S., which have collected $360 billion on a net basis. Nearly three-quarters of this amount was absorbed by funds in Europe, including cross-border UCITS funds that are sold in markets worldwide.

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Bond fund net redemptions in European and cross-border international funds were found to have reached 1.7% of total assets during June, similar to the levels experienced in the U.S. Equity funds; however, registered net redemptions of just 0.5% of assets. With stock markets recovering in July, cash flows should reveal an improvement. Historically, stock or bond fund redemptions driven by sharp price corrections have usually been limited in magnitude, short in duration, and non-recurring, SI said.

“The recent volatility will encourage investors and advisers to revisit their investment strategies, assess bond concentration risks, and consider reallocation opportunities—especially into selected equity programs and other diversification options. Absolute return and alternative strategies should also benefit in the near term,” said Jag Alexeyev, head of global research at SI.

Demand in Europe and Asia will continue to revolve around the major themes of recent months but with some shift in emphasis, SI said. Income vehicles, multi-asset, flexible and unconstrained allocation, nontraditional strategies, risk control and managed volatility, target maturity, and outcome-oriented products recently powered the gains for asset managers and will remain in demand, but sales of equity funds will also likely expand over time.

Overall the foundation of support for fund investments this year has been exceptionally strong, according to SI. Cash flows for some leading funds in the first quarter ran at more than double the monthly pace seen last year. Sales grew even further in April and May for a few, and even though June was a difficult month, flows in the second quarter were higher than the previous period for several flagship products.

Strategic Insight counts nearly 270 funds around the world that each captured at least $1 billion and as much as $13 billion during the first half of 2013.

What’s Top of Mind for Plan Sponsors?

Two things always on a plan sponsor’s mind—retirement readiness and fiduciary responsibility—are opportunities for retirement plan advisers.

Plan sponsors turn to advisers for a range of support services, and confidence in their own understanding of their fiduciary responsibilities is not a given.

Fidelity’s Fourth Plan Sponsor Attitudes survey revealed that plan sponsors’ concerns over employee retirement readiness and fiduciary responsibility may not only be creating a greater reliance on advisers (84% in the survey use an adviser), but also increasing their expectations of how advisers can help them.

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Only slightly more than half of survey respondents (58%) are certain or very certain in their understanding, and 42% admit to needing help.

About two-thirds of all plan sponsors (66%) reported that “some, quite a few, or all employees” are in fact delaying retirement because they are not prepared. Over half of plan sponsors(57%)  say they don’t think participants are saving enough. Plan sponsors are still not confident that they fully understand their fiduciary responsibilities – 42% say still need help.  

These concerns also create greater expectations for adviser services: While 84% of all plan sponsors in the survey use an adviser and satisfaction is increasing, a little more than one-third (38%) are unsatisfied and 10% are actively looking to switch advisers.

Plan sponsors expect a wide range of investment and retirement expertise from their advisers, and desire a “more knowledgeable adviser.” Seven areas of expertise—regulatory changes; managing fiduciary responsibility and risk; plan design; improving plan performance; minimizing costs; offering insight on participant trends and behavior; selecting and monitoring investment options—were cited as the marks of the more knowledgeable adviser.

Active Advisers, Active Sponsors

Advisers play a critical role in plan sponsors’ engagement, the survey found, as those who work with advisers are more likely to make changes to plans than those who do not.  Plan sponsors indicated in the survey that they are more actively:

Analyzing their investments—91% of plan sponsors are reviewing investment performance annually or more frequently.

Making plan design changes72% of plan sponsors have made a plan change in the last two years and 55 percent are looking to make changes in the future. 

Replacing underperforming funds—In the last two years, 70% of plan sponsors replaced funds that had performance issues.

Fidelity examined why plan sponsors switch advisers. According to the survey, 10% of plan sponsors are actively looking to change advisers. Top reasons for shopping around were the need for a more knowledgeable adviser (31%), servicing issues with a plan provider (28%) and not enough adviser support for plan servicing (12%). These numbers have ticked up each year the survey was performed. For example, in 2010, 5% of plan sponsors cited lack of support for plan servicing, which nudged up to 8% in 2012.            

Advisers may be able to demonstrate value by keeping in mind what plan sponsor respondents said advisers do not do. A majority of plan sponsors (78%) said that advisers do not report how much time is spent working on the plan. More than half of plan sponsors (69%) said advisers do not report on types of activities for the plan. And 60% said advisers do not demonstrate how plan performance improved.

The Fidelity survey polled 937 sponsors of plans ranging in size from 25 to 10,000 participants. The plans used a wide variety of recordkeepers, including Fidelity and other firms. The survey can be downloaded here.

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