Not exactly a relaxed decade for the world – a very partial alphabetical list includes:
Abu Ghraib, American Idol, Anthrax, Arthur Anderson (see Enron, see Tiger), Bear Stearns, Blackout in NY, Bali bombs, Bernie Ebbers, Burma
cyclone, Bush (43), China earthquake, Color-coded terror alerts, Credit crisis, Dennis Kozlowski, Enron, Galleon Group, Grasso (Richard), Iraq war, H1N1, Hurricane Katrina, Jerome Kiervel, Joe the Plumber, Kashmir earthquake, Lehman, Madoff, Martha Stewart, Mumbai terror, 9/11, Palin (Sarah, lipstick), Pension pay-to-play (NY), SARS, Satyam, Sir Stanford, Swiftboats, Tech bubble, Thain (John, carpet), 3/11, Tiger Woods, Tsunami, Work of God (GS), …
But of course there were also a few bright lights – Avatar, Borat, Barack Obama, Green Revolution, Tech Revolution, and, surprise, the mutual fund industry.
Especially with all the financial scandals and the tech bubble and credit crisis, in a decade where stocks ended lower than they started
one would assume the mutual fund as a boring long-term retirement savings vehicle would not attract much aggregate attention. Wrong.
Are you sitting down?
The global mutual fund industry in the last ten years attracted net cash contributions of $7.3 trillion. That means the industry on
average added almost $750 billion in net flows every year. More importantly, $5.2 trillion of that total went to long-term funds, with $2.9 trillion to equities. Thus, despite the “year of fixed-income” and the ongoing discussion around the validity of the equity risk premium, 40% of all flows in the last decade went to equity funds, well ahead of bond funds ($1.6 trillion) and even money funds ($2.1 trillion).
- Emerging market growth potential (GDP growth, low penetration of funds, higher incomes and high savings rates)
- Metatrends West-to-East and Back-to-Basics
- Possible comeback of equities vis-a-vis fixed income
and mix it with these business basics:
- Continuously high profit margins
- High turnover ratio for industry leaders
- Global Themes
- Fragmented industries, high complexity
Asset management continues to be one of the most exciting industries to be in.
Of course, not for everyone. We are seeing a greater concentration of flows to fewer companies and products and, at the same time, greater
turnover of league tables.
For instance, two-thirds of the top 50 managers that led the industry 10 years ago in terms of AUM are not on the list any more (conversely, 70% of leading companies today are new club members). Yet, it is a sustainable business with sticky money. Remarkably, 50 products globally in the last five years were able to get more than $10 billion in combined net flows each, i.e. two billion in new money each year.
Selected global blockbusters for 2005-2009 flows:
- US: Pimco Total Return ($83 billion) (#1)
- Japan: Pictet Global Income Equity ($19 bil) (#15)
- Fixed-Income: Templeton Global Bond ($19 bil) (#16)
- Asset-Allocation: Carmignac Patrimoine ($18 bil) (#19)
- Thematic: BGF Global Allocation ($12 bil) (#32)
Happy new year, happy decade.
Warren Enskat Group 