NEW YORK, 2016-06-01
by Lawrence Petrone, CFA
The Department of Labor (DOL) Fiduciary Rule is expected to have significant impact on the design and cost of funds offered to Defined Contribution plans, plan participants and IRA accounts. While asset managers need to work closely with their distributor partners to fully address Rule requirements and implications, firms should begin taking some immediate steps to withstand the additional scrutiny and take full strategic advantage of the changes the Rule will bring.
In the following article we take a look at product and pricing changes DST kasina believes will materialize, and the steps asset managers should take to address those changes, including:
Product Implications of the Fiduciary RuleA look at product & pricing changes DST kasina believes will materialize with the DOL Rule, & the steps asset managers should take to address those changes.
Active Management’s Real Challenge: A Competitive Pricing Model?We explore the various pricing options being used today, both in the United States and abroad, with an eye toward finding a more competitive and viable solution. We pay special attention to performance-based fee structures, examining their benefits and current limitations.
Active Management Faces a Strategic Imperative: Pivot, or …In this article, we explore the gale-force winds challenging active management and examine the interplay between performance and pricing. Our conclusion: the current pricing model may not be sustainable. In the article that follows, we will look at pricing models that might be better suited to make active management more competitive in the “new normal.”
Some Product and Distribution Implications of the New Liquidity RulesWe want to urge firms with open-end funds, including ETFs, to consider plans for the new liquidity regime that is rapidly approaching. Based on our humble opinion and experience, we believe it may require action sooner rather than later.
A “Whodunnit” for U.S. Master/Foreign Feeder ProductThe Securities and Exchange Commission issued a no-action letter assuring asset managers and sponsors offering master-feeder products across non-U.S. jurisdictions that — if certain conditions are met — they would not be in violation of Section 12 (d) (1)(A) or (B) of the Investment Company Act of 1940 (the “40 Act”). In effect, the changes relax some of the current limits regarding a Foreign Feeder Funds’ acquisition of a single U.S. Master Fund and alter the rules regarding sales of the U.S. Master Fund’s securities to the Foreign Feeder through U.S. principal underwriters or broker dealers.
Developing Brand-Aligned ProductsFor asset managers, being brand-guided creates a coherent connection between your investment products and your brand that doesn’t just help distinguish your funds from hundreds of similar strategies — it’s critical to building a strong reputation in the marketplace. It helps cushion you from the whimsy of market performance, and provides new funds with a built-in credibility that helps attract more flows.
Leveraging Alternative Portfolio Structures in Dynamic Investment MarketGreater retail investor demand for alternative returns and income strategies, and larger disruptive changes present an opportunity for asset managers who offer these alternative structures. We examine these industry developments and the benefits of several alternative retail structures & make several recommendations to sponsors of alternative products to better position their firm.
Identifying Prospects for MAC Products by Channel and Investment InfluenceTwo-thirds of advisors use multi-asset class funds, but how they incorporate these funds into a portfolio varies. Nearly three in 10 advisors use multiple MACs as non-core allocations in client portfolios to enhance or control for outcomes like income and volatility, good news for firms providing more tactically oriented products. Nearly 14% of advisors use a single MAC as the core allocation — offering a much larger potential share of assets for traditional allocation or comprehensive solution-oriented products, but forcing firms to displace the incumbent. As a result, the one-fifth of advisors using multiple MACs as part of the core allocation may be more promising for broad-based MACs.
Observations on Global (“Go Anywhere”) Macro Mutual FundsEducating consumers on the benefits of a global macro strategy and mapping or positioning your product’s attributes to customer needs is a vital piece of the success equation. For both existing and new entrants, we see ongoing real time marketing communications as an essential ingredient for these less-than-common products.
Multifactor Strategic Beta: How Managed Solutions Can Enhance AlphaStrategic Beta changes the conversation between clients and advisors. Smart Beta strategies are low cost and have demonstrated significant outperformance. But because of the immense variety in the Strategic Beta ecosystem, investors probably need help sorting through the flora and fauna, creating an array of opportunities for asset managers.
Mutual Fund Share Class PaloozaIt behooves us to analyze the potential new world order — post-DOL Rule — taking into account the client expense on an annualized basis under the array of share class offerings that would likely be prevalent in what we have dubbed the share class palooza situation. To that end, we decided to dissect the fee structure of American Funds’ Capital World Growth and Income Fund — merely as an illustration.
Migrating from Products to Solutions: How Compensation Affects AdviceWhy is it so hard for the industry to shift from products to solutions? One reason is that the compensation structures in wealth management incentivize product sales, rather than holistic, client-centric solutions. This article more fully explores why asset managers find it so hard to move toward solutions, and what they need to do to foster solutions-based products.
Will Baby Boomers Fuel the Drive for Actively Managed Constrained Volatility Funds?In this article we explore: Are there actively managed funds that are out-performing their indices while looking to manage risk and/or volatility? Are these funds explicitly looking to reduce downside risk/capture? Do they have a track record of demonstrating such constrained volatility, and are they getting traction in terms of fund inflows?
Understanding Advisor Asset Allocation to Identify Preferences and BehaviorsAs advisors and models seek out more “best of breed” products, they are becoming increasingly selective, choosing a smaller number of funds from each firm. According to our research, the number of asset managers that advisors are using in their portfolios has increased to an average of 8.4, while the number of products they’re using per firm is declining.
Responding to Fee Pressure: Model Delivery and Flat FeesFee pressures are not likely to subside any time soon. Model delivery and flat fees began as a response to fee pressures, but they also create new product development opportunities. Firms can start the process by asking the right questions.
CITs Primed for Expansion in the Defined Contribution MarketA combination of factors, including their inherent cost advantages and growing regulatory compliance requirements, may be creating the perfect storm for CITs — one that will enable them to become the dominant investment vehicle in the defined contribution market as well. In fact, we believe CITs could reach $3.1 trillion in total retirement assets by the end of 2018, up from $1.9 trillion at the end of 2015. And perhaps most significantly, that is only a small measure of the vehicle’s potential.
Looking at 2016 Flows Across Three Fund MarketsMoreover, based on the strong flows data, we can assume that the demand for yield transcends retail demographic groups. As such, the data suggests firms need to offer an assortment of yield-focused investment strategies with a selection of income/risk segments. That menu of fixed income products should also include one or more emerging market debt funds.
The Big Squeeze In Fund DistributionWhile asset managers have traditionally focused most of their product, sales and marketing resources on their tier one partners, they need to double down on that approach, especially in this disruptive new world of fewer distributors with slimmed down fund menus. Firms should consider eliminating distributor relationships in which fund placement is negligible.
Performance Trumps AllGiven the degree to which performance has bubbled to the top of the quantitative review criteria, and the strategic shift toward “expanding range of products” and catering to “specific channel demands,” we believe product line rationalization seems to be a growing priority for many product strategy teams.
Understanding Gatekeeper Priorities: Four Recommendations for Asset ManagersValue-added services from asset managers can better support distributors and their advisors by helping investors attain their investment goals. Thus, value-added services can add a form of alpha beyond what is traditionally measured in statistics such as Sharpe and Sortino ratios.
Improving Product Support to Distribution PartnersPressure to produce fact sheets quickly after the quarter ends fuels a desire to minimize interactions with compliance. This means many fact sheets begin with a dense investment objective that’s been regurgitated from the prospectus and says little about what the fund actually does or how it’s different from every other fund in its category. Distributors noted that ETF fact sheets tend to be the exception, and the difference starts at the top.
Observations on the MAC-Reliant AdvisorsTo maximize selling opportunities, it’s clearly critical for asset managers to understand how their advisors allocate client portfolios to MAC funds, and segment their advisor clients accordingly.
Strategic Beta ETPs: Key Opportunities and ThreatsDST kasina explores opportunities for new strategic beta products, and for today’s niche products to gain market share.
Searching for Opportunities in a Maturing MarketDST kasina explores opportunities in sector and non-transparent ETFs when firms have realistic growth and asset expectations.
ETFs in Retirement Accounts: The Next Growth Opportunity?DST kasina examines potential areas of ETF growth in IRAs and 401(k)s, and macro & micro trends influencing the adoption of ETFs in the retirement market.
The Increasing Role of Product Specialists in Product DistributionExperienced & knowledgeable Institutional Product Managers, Investment Directors and Investment Specialists should be part of any distribution strategy.
The Top Robo-advisors: What They’re Like — and How They Could Be BetterDST kasina looks more closely at the four largest robo-advisors in terms of assets, and considers opportunities for the enhancement of robo-portfolios.
A Slow but Steady Retail Call to ActionWe present evidence behind expectations for a change in retail appetite for SRI/ESG & offer recommendations for active participation in this budding market.
Focusing on the Investment Process in Fund MarketingDST kasina's article describes how asset managers can adapt messaging to focus on investment process, offering examples of funds that are executing well.
Continuously Offered Closed-end FundsDST kasina discusses advantages & challenges of interval & tender offer funds & presents recommendations for firms that should consider these structures.
Building a Solutions CompetencyThe managed account market is moving toward solution products; to remain relevant, asset managers must expand their strategy to include solutions investing.
Robo-Advisors: The Future of Digitally Delivered Automated InvestmentDigital advice services (robo-advisors) are here to stay. kasina shows asset managers how to examine the ways to participate to stay relevant & competitive.
The Next Wave of Active ETPs is ComingActive ETPs are in their nascent stages & the next wave of innovation is still to come. kasina explores vital considerations of which firms need to mindful.
North American Fund Monitorkasina updates the status of North American funds, including WisdomTree, Deutsche Asset and Wealth Management’s currency-hedged ETFs, BlackRock and iShares.
Liquid Alts in UMAs: Capitalizing on an Evolving Marketkasina offers recommendations to help asset managers get traction in the evolving UMA marketplace.
Liquid Alts: Protecting the Franchise as Regulatory Scrutiny Riseskasina recommends actions that asset managers must take to protect their franchise in the face of regulatory action on liquid alts.
Leveraging Brand in Product DevelopmentWaiting to think about brand until the product is ready to launch, or not at all, will cost you time, money, opportunities—or all of the above. On the other hand, effectively leveraging brand during product development can create products that stand alone in a category of one, offer unique advantages to advisors and investors and attract more—and more loyal—advisors.
Liquid Alternative Funds at a Critical Inflection Pointkasina looks into what specifically is causing the slowdown in net sales of liquid alternatives.
The State of and Opportunities in the Multifactor Strategic Beta MarketAdvocates of strategic beta believe that traditional market-cap weighted indexes have a systemic flaw: they systemically overweight the most overvalued securities and underweight the most undervalued securities. In the long run, the argument goes, that flaw leads to a drag on potential returns. By breaking the link between market valuation and weighting in an index—using company fundamentals and/or factor tilts to weight securities instead—investors can take advantage of better risk-adjusted returns over long investment cycles.
Meeting the Challenges of the Current Intermediary Product MarketManaging a robust product pipeline and populating it with sound products ideas that have the potential to achieve scale and sustain long-term success is another challenge altogether. In fact, most funds will not achieve an acceptable level of success. In this article, we provide several considerations to optimize the chances of developing a successful new product, but first, let’s look at the success rate of products that have been launched since 2006 and have at least a three-year track record.
A Regulatory Lesson for North American Asset Managershigh net worth investors will likely continue to migrate toward independent fee-only advisors or family offices in Canada based on more consumer friendly, fee-only charges and demand for more custom services. And finally, the opportunity for growth in the solutions-based market is not solely restricted to the U.S.
Global Fund Monitor 2Q 2015The funds are designed for pre-retiree or retiree plan participants and aim to provide more predictable cash flow distributions from their investment accounts. Each fund invests predominantly in U.S. investment-grade government and corporate bonds, asset-backed securities and municipal bonds. The funds are managed to mature in the year included in their names. As the fund approaches its maturity date, the underlying investments shift more to cash, cash equivalents, money market instruments and short-term bonds.
Global Fund MonitorGlobal Fund Monitor - 2015 First Quarter New Fund Launchings & Filings in the United States, Canada, and outside North America.
Global Macro Design & Support Considerations for the Canadian Fund MarketAsset managers in Canada wishing to launch a global macro strategy, or replicate an existing strategy as a retail product, must consider the factors below.
The Emerging Solutions Marketkasina offers guidance and offers examples of solution portfolios—including those already in the market and potential new opportunities.
Product and Investment Strategy Trends Among Independent RIAskasina examined product management & portfolio construction tactics used by RIAs & offers guidance on product strategies that appeal to this growing channel.
Reaching the Right Advisors with kasina's Multi-Factor FrameworkWhat data should be collected, and how should it be organized to deliver tactical analytics that are most helpful to sales, product, & marketing executives?
Recent Trends in Retirement Mutual Fund Shareskasina finds trends in the types of retirement mutual fund share class & pricing being offered to retirement platforms over the last two years.
Global Fund Monitor2014 fourth quarter new fund launches and filings.
A Prognosis on Risk Constrained Investment Strategies for AdvisorsAn overview of this nascent but opportunistic market, as well as strategy and distribution recommendations for managers considering such an offering.
Enhancing Advisor Relationships with Portfolio Analytic ConsultationAsset Managers are launching portfolio analytics services, which become part of a firm’s own value proposition in supporting advisors.
Offering Differentiated Large Cap Fund StrategiesTo identify investment strategies that have resonated with advisors, we reviewed the top 20 funds for three-year net flows in each of the Large Blend, Large Growth and Large Value categories.
The Endowment Model & Implications for Fund Firmskasina examines the issues and explores the implications for the ’40 Act market, mutual funds and ETFs with hedge fund investment strategies.
Non-transparent Active ETF Proposed StructuresActive ETFs have been heralded as the next big growth opportunity in the asset management industry.
Global Fund MonitorLead Graphic for the October 2014 Product Strategy Compass
Gauging Opportunities in Liquidity StructuresThe article examines different liquidity structures for access to alternative asset classes and whether there are opportunities for asset managers in the non-traded market.
Trends & Innovation in Cross-Border UCITS FundsThere were over 35,000 UCITS compliant mutual funds with approximately $9.5 trillion in assets at the end of 2013 – more than five times the number of ’40 Act mutual funds.
Evaluating Risk and Growth Through Corporate GovernanceInstitutional investors have been looking at environmental, social and governance (ESG) investing criteria to enhance investment returns. The evidence suggests it may be time for more active asset managers to do the same.
Throw Out Your Sharpe RatioTo improve intermediary understanding of fund risks and engage investors in a risk-return dialogue, firms should employ a more expansive risk presentation.
Prospects for Managing Sub-advised ’40 Act FundsA look at portfolio management opportunities for asset managers seeking subadvised portfolio management opportunities in the ’40 Act fund market.
Innovation in Retirement IncomeFew firms have developed truly innovative solutions to address the needs of the Baby Boomer segment of the retail market.
Product Strategy Team Staffing and Process TrendsA sound product strategy and product management infrastructure, and a well-conceived, robust product support process, is increasingly important in order to maintain a dynamic menu of products.
Evaluation Institutional Portfolio Trends for the Intermediary MarketIn this article, we focus on portfolio management and risk management trends.
An Alternatives Anomaly or OpportunityWithin the ’40 Act market, event-driven strategies represent only a small fraction of alternative funds and growth has been well below that of other popular alternative strategies, such as long-Short equity, nontraditional bond and other categories.
Communicating Alternatives' PedigreeCategorizing and evaluating the performance of alternatives is not yet on par with more established asset classes.
Evaluating the Opportunities in Unconstrained Bond FundsUnconstrained bond funds offered a rare bright spot among fixed income funds last year when it came to attracting money flows, as investors fled traditional intermediate-term bonds and Treasuries.
The Year Ahead for the ETP MarketBy most measures, 2013 was yet another good year for ETFs. Net flows across most ETF categories were strong through most of the year.
The Coming Wave of Retirement Income ProductsAs a significant swath of the Baby Boomer population in the U.S. heads rapidly toward retirement, often with inadequate savings, the need for income producing investment solutions has never been greater.
Evaluating Institutional Alternative Trends for the Intermediary MarketThe institutional investment market has proven to be a leading indicator of emerging asset classes, categories and portfolio management ...
Private Equity in a '40 Act StructureAfter the enduring strains of the 208 financial crisis when fundraising dropped sharply, private equity saw a bit of a comeback. Not only has fundraising increased, but performance has steadily improved as well.
Opportunities in the CEF MarketAlthough their interest is certainly understandable given the growing demand by retail investors for leveraged income products, firms need to be very selective in their entrance into the CEF market given the dominance of certain firms in the space and the overabundance of municipal and fixed-income CEFs in the market.
The Alphabet Soup of 2012 Share Class LaunchesJust as investor concerns over rising interest rates and capital preservation have prompted asset managers to devise a variety of investment strategies, market demand for cheaper products have encouraged firms to launch new funds with lower-fee share classes.
The Advance of Smart BetaAs an increasing percentage of investor dollars turn to indexed-based strategies over actively-managed portfolios and funds, a growing number of organizations are touting new forms of indexation known as ―smart beta‖ or advanced beta.
Risk Management Evolution In Target-Date FundsIn this article, kasina suggests several product features and distribution options that position mutual fund firms to better compete in the specialty mutual fund segment of the fund market.
Diversifying Funds With Private BetaIn this article, kasina explores the portfolio diversification and income benefits of private market debt, and suggests several ways for asset managers and insurers to partner with firms that specialize in packaging syndicated loans for investors.
A Storm On The Defined Contribution HorizonWe expect to see dramatic changes to defined contribution plans over the next several years. In this article we look at the factors driving that change, the challenges they present for asset managers that primarily offer actively-managed funds for retirement plans, and the options available to those firms.
Recapturing the Alternatives Dialogue - Managed FuturesIn this article we look at why firms must carry their message to third party financial sites, and closely examine the managed futures segment.
Emerging Impact of ETF Managed PortfoliosA growing number of industry registered investment advisory firms have increasingly drawn retail assets to their proprietary ETF models. In this article, we examine the performance of these portfolios, and the market potential for their growth.
Essential ETF Considerations for Mutual Fund CompaniesIn this article we present several ETF product strategy recommendations that we believe offer attractive market opportunities for most fund companies.
Differentiating Total Return, or Global Macro FundsWe identify key differences in total return funds and offer suggestions to differentiate new total return strategies in the market.