The Markets September 16, 2011

Demand for Sub-Advised Mutual Funds Expected to Increase

In spite of market volatility, Financial Research Corporation (FRC) expects demand for sub-advised mutual funds to rise and assets to reach $2.2 trillion by 2016, according to industry data.
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This number represents an 11% compound annual growth rate (CAGR) from 2011 through 2016.  

FRC says sub-advised mutual funds seem to have reached market maturity in percentage of assets that are sub-advised. But there is more growth on the way for sub-advised variable annuities (VA) as they take more share of the industry.   

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Demand for external managers, as measured by mandate changes, was high in 2010 and has declined as expected in 2011, particularly in the VA marketplace. FRC expects further declines in manager changes over the next year if the market remains volatile.   

Sub-advisers will continue to face an opaque market when it comes to finding opportunity, but smaller firms should not feel disadvantaged, FRC said. The playing field seems more level than previously thought.   

Late 2011 and 2012 will bring increased competition for fewer mandates, performance pressure escalation, and broader stock market challenges.   

FRC’s recent report Winning in the Sub-Advisory Business reveals that sub-adviser firms polled say their primary source of manager search information is the manager itself (see “Report Reveals Sources for Sub-Adviser Opportunities“).  

The Markets September 16, 2011

Morningstar Adds Strategies to Managed Portfolios Program

Morningstar Investment Services, Inc. (MIS) introduced a suite of new strategies to Morningstar Managed Portfolios, including active/passive, momentum ETF, and global tactical ETF portfolios.
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Morningstar Managed Portfolios is a fee-based discretionary investment management program offered exclusively through financial advisers. The new strategies implement methodologies developed by Ibbotson Associates. MIS and Ibbotson are registered investment advisers within Morningstar’s Investment Management division. The portfolios include Active/Passive Portfolios, Momentum EFT Portfolios, and Global Tactical ETF Portfolio.

“These new portfolios leverage the best ideas and latest research from across Morningstar’s Investment Management division,” said Thomas Idzorek, Chief Investment Officer and Research Director for the Morningstar Investment Management division. “All three new strategies start with robust Ibbotson asset allocations and then attempt to add additional value through active-risk budgeting or tactical modeling to exploit the momentum anomaly or momentum and mean reversion patterns.”

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Additional information about Morningstar Managed Portfolios is available at global.morningstar.com/mis.

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