In Practice November 12, 2010

FRC Says Alternatives a Growth Opportunity for Asset Managers

Financial Research Corporation (FRC) says registered alternative products have performed strongly over the past few years and may be of interest to asset management firms.
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FRC’s report, Opportunities in Registered Alternative Products, says there are nearly 400 registered alternative funds that employ a hedge-like strategy with assets totaling over $255 billion, as of July 2010.   

The firm said it believes Market Neutral funds with a broad investment mandate considerably lower the risk of a balanced portfolio. Their returns since 2005 have, on average, been significantly less volatile than domestic or international equity funds, based on top to bottom quartile annual returns.   

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In addition, FRC contends that registered alternatives offer some shelter from the fee compression the industry has witnessed with conventional funds and ETFs, at least for the present. Although as the sector matures, the firm fully expects some fee and expense price compression.   

In the report, FRC examines the growth of funds that comprise registered alternative products, and explores several key management and competitive issues for asset management firms already participating in registered alternatives markets or those considering launching new alternative products. The report also provides data about the assets and net flows of the funds, as well as returns and fees associated with the products.   

Findings in the study are based on an analysis of FRC’s IMPACT comprehensive analytics platform of fund data, as well as information from Lipper Data Feed Services, Morningstar Direct, as well as interviews with firms offering registered alternative funds and ETFs, and prior FRC research, including FRC’s Advisor Action Report (2010), and Mutual Fund Market Sizing, 2010-2014 (2010). 

Products November 12, 2010

SI Offers Variable Annuity Living Benefit Research

Strategic Insight, an Asset International company, announced the availability of “Variable Annuity Living Benefits and Eligible Funds,” a new report highlighting the industry’s most popular and newly innovated living benefits.
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The report serves as a snapshot of the latest VA living benefits and available investment options. It can be used as a guide to:   

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  • Monitor competing living benefit options, 
  • Identify investment limitations associated with key living benefits, 
  • Identify equity exposure on the investment options associated with living benefits, 
  • Compare living benefits and investment options across VA providers, and 
  • Compare fund performance and fund composition of the eligible investment options. 

The research found the most common type of investment restriction was individual eligible funds, which are used among 19 of the benefits covered in the report. However, custom allocation programs were also popular and were used in 15 benefits. Model allocation programs were used in 12 benefits. Overall, 21 benefits employed multiple types of investment restrictions.  

With coverage of 23 living benefits from 17 insurance companies, the summaries outline the characteristics of each in easy-to-understand language. The report covers benefit provisions in detail from non-withdrawal bonuses, such as Nationwide’s 10% Lifetime Income option, through lump sum payment options, such as Ohio National’s GLWB (Guaranteed Lifetime Withdrawal Benefit).   

The fees, withdrawal percentages, and age breakpoints are laid out in grid formats to highlight multiple choices in benefit options such as Jackson National’s Freedom Flex bonus and step up options. The report explains features like SunAmerica’s Income Plus’s VIX-based fee calculation.   

In addition, a breakdown of all available investment allocations is provided. Equity risk exposure is used to compare benefits and is based on the investment limitations of each benefit versus the actual current equity exposure of the underlying funds, SI explained.   

For custom allocation models, the report features a proprietary equity exposure calculation with precise figures of the minimum fixed allocation as well as the maximum possible equity exposure, which is calculated using the most equity-heavy fund(s) available under the custom allocation. Combined with the custom allocation program’s investment threshold, this provides a look into each benefit’s investment make-up.   

Total return and fee and expense reports on each individual underlying investment option are also part of the fund analysis. The details of model allocation programs also give a picture of the choice an investor may make when selecting a particular living benefit. 

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