The Markets January 3, 2011

Mutual Funds See $900B Net Inflows in 2010

Worldwide, mutual funds added more than $900 billion in long-term net gains for 2010, according to a report from Strategic Insight, an Asset International company.

Reported by

Rebecca Moore

In its 2010 Global Mutual Fund Review, 2011 Outlook report, SI said close to two-thirds of the total flows came from bond funds and one-third from equity/balanced products. Equity and bond funds in aggregate surpassed $1.8 trillion in cash net flows since 4Q 2008.

A few key points from the report include:

Acceleration of net flows to mutual funds: Long-term fund flows for the last decade stand at $5.2 trillion, or about $520 billion per annum – compared to over $900 billion in annualized net flows to equity and bond funds post-crisis. In addition to the accelerating flow pace, there has been a strong regional and asset class shift in the last two years for the global fund industry.
From equities to fixed-income – and back? From 2005-2007, equity funds accounted for three quarters of long-term flows, compared to one quarter to fixed-income products. Since 2008, however, fixed-income flows gathered three quarters of long-term flows, and equity fell to one quarter of the total (partially as a result of demand for emerging wealth regions and accelerating use of ETFs). While the size and scope of bond flows going forward is a debate in the industry (witness the net redemptions among many bond funds in recent weeks), SI anticipates moderated yet sustained bond demand around “safety & income” alongside a cautious return to equity funds in 2011 (and a growing proportion of equity fund flows over time).
Developed vs. emerging market fund flows: In the period from 2005 through 2007, combined flows to local and cross-border funds in Asia jumped to one third of the total worldwide, behind the United States at 38%, but ahead of Europe, with 29% of global long-term net flows. Flows were thus almost evenly distributed by region, although Asia only accounts for a fraction of the assets managed in the US and Europe, respectively.

SI said that since the crisis, Europe fund flows shot up to 43% of the global total (despite its very public debt crisis), as Asia fell to 10% (despite its very public economic growth), due to a combination of lackluster local flows and cumbersome sales processes for cross-border products in the aftermath of the accumulator and mini-bond scandals. The U.S. on the strength of its bond fund flows remained the leader with 47% of all flows.

(Cont...)

Mutual Fund Industry Outlook for 2011

In its 2010 Global Mutual Fund Review, 2011 Outlook report, SI said many of the forces that influenced investor behavior and choices in 2010 are likely to remain in place for at least part of 2011: financial uncertainty, very low cash yields (in some developed capital markets), a secularly depreciating U.S. Dollar, QE2, the debt crisis in Europe, lack-luster aggregate demand for funds across Asia, regulatory changes and uncertainties, convergence of multiple parts of the industry and investor compartmentalization between “safety & income” and “risk capital” in an overall context of risk aversion.

SI said it is observing a "back-to-basics” trend, with distributors emphasizing partnerships as they are re-evaluating supplier choices. This has important business implications as global distributors and institutions are re-assessing the expertise and brand of fund managers across asset classes and investment categories.

While themes and simplicity currently dominate the product landscape, institutions and distributors around the world going forward expect a gradual shift towards “bridge” products, leading towards investment solutions and absolute return themes, albeit with geographical nuances.

2011 priorities identified by institutions and global distributors include: