Investors turn to fixed income and money market category groups in 2016 looking for less risky assets
Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published its fifth annual Global Asset Flows Report examining worldwide 2016 mutual fund and exchange-traded product (ETP) asset flows. Worldwide flows decreased to $728 billion in 2016 from $1 trillion in 2015, signaling slowing demand for global markets. Outside the United States, flows were mostly evenly distributed among the three other major regions analyzed by Morningstar: cross-border funds, which are available in multiple markets, Europe, and Asia, with flows of $138 billion, $103 billion, and $134 billion, respectively. The U.S. fund industry had new asset flows of $288 billion, an increase from $260 billion in 2015.
“2016 was a year of modest growth around the world, with heightened uncertainty due in part to extraordinary political events,” Alina Lamy, senior markets analyst for Morningstar, said. “Investors are reacting to this turbulent environment by going back to the basics, looking for less risky assets, positioning their portfolios in expectation of rising interest rates, or selling off equities after a significant run-up. More specifically, fixed-income strategies saw the largest flows globally in 2016 and commodity funds experienced a high organic growth rate, with the largest inflows going to the precious metals category.”
Highlights from Morningstar’s 2016 Global Asset Flows Report include:
- The pattern of flows by category group notably differed from 2015. In 2016, the category groups that received the largest flows were fixed income and money market with flows of $412 billion and $196 billion, respectively. In 2015, the top-receiving category group was equity, with $346 billion, followed by allocation, with $167 billion. In terms of organic growth rates, commodities grew the fastest at 25.7 percent in 2016.
- Vanguard continued to dominate the asset management industry last year, sustained and propelled by the growing popularity of index strategies. Vanguard, with net inflows of $317 billion, is followed by BlackRock/ iShares with net inflows of $154 billion. The fastest-growing firm in the top 10 was State Street, which saw an organic growth rate of 12.5 percent in 2016. Generally, firms that expanded their product lines to include ETPs and lower-cost options have benefited, while those focused on traditional active management have suffered such as Franklin Templeton, which saw an outflow of $72 billion in 2016.
- In the United States, index funds attracted $492 billion in 2016. Their active counterparts, in sharp contrast, saw $204 billion of outflows. In the Asia, cross-border, and Europe regions, however, active flows beat their passive counterparts.
- The largest discrepancy between active and passive flows occurred in the equity category group, with $390 billion going into index funds and $423 billion flowing out of active funds. Fixed income received inflows across both active and passive strategies worldwide.
- Funds that have a quantitative Morningstar Rating™ of 4 and 5 stars saw inflows in 2016 of $127 billion and $221 billion, respectively, while 1-, 2-, and 3-star funds suffered outflows. Similarly, funds that have a qualitative Morningstar Analyst Rating™ of Gold and Silver attracted the largest inflows of $29 billion and $14 billion, respectively, and posted the only positive organic growth rates.
- ETP assets continued to grow, reaching $3.6 trillion globally at the end of 2016, signaling that investors are increasingly sensitive to fees.
The Morningstar Global Asset Flows Report is based on assets reported by more than 4,000 fund groups across 85 domiciles. The report represents more than 95,000 fund portfolios encompassing more than
240,000 share classes and includes a global overview as well as analysis about the United States, Europe, Asia, and cross-border offerings. Morningstar estimates net flow for mutual funds by computing the change in assets not explained by the performance of the fund and net flow for ETPs by computing the change in shares outstanding.
The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in
the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $200 billion in assets under advisement and
management as of 31 Dec 2016. The company has operations in 27 countries.
Morningstar’s Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Morningstar’s Manager Research Group’s current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst Ratings are not guarantees nor should they be viewed as an assessment of a fund’s or the fund’s underlying securities’ creditworthiness. This press release is for informational purposes only; references to securities in this press release should not be considered an offer or solicitation to buy or sell the securities.
Dollar gains as U.S. growth seen likely to outperform
By Karen Brettell
NEW YORK (Reuters) – The dollar gained on Wednesday as investors priced for strong U.S. growth relative to other regions, while the safe haven Japanese yen continued to weaken to a seven-month low.
Investors have boosted bets on U.S. growth and inflation as the government prepares new fiscal stimulus, and speculation is rising that the Federal Reserve could also be closer to normalizing monetary policy than previously expected.
“What the market is looking at today are growth differentials between a recovering U.S. and more of a sputtering Europe,” said Joe Manimbo, senior market analyst at Western Union Business Solutions, in Washington.
Data on Wednesday showed that the euro zone economy is almost certainly in a double-dip recession as COVID-19 lockdowns continue to hammer the services industry.
U.S. data also showed that private payrolls rose by 117,000 jobs last month, according to the ADP National Employment Report, missing expectations.
However, “expectations are for stronger hiring” when the U.S. releases jobs data for February on Friday, Manimbo said.
The dollar index was last up 0.22% at 90.997.
The euro dipped 0.30% to $1.2054.
The U.S. currency has also benefited from a rise in U.S. Treasury yields. Benchmark 10-year yields on Wednesday rose to 1.481%, though they are below a one-year high of 1.614% reached last week.
Comments by Federal Reserve Chairman Jerome Powell on Thursday will be closely evaluated for any indications that the Fed is uncomfortable with the recent yield increases. He is speaking at an event on the U.S. economy.
Riskier currencies including the Australian dollar dipped as stocks fell, indicating worsening risk sentiment. [.N]
The Aussie was last down 0.57% at $0.778. It has fallen from a three-year high of $0.8007 last week.
Meanwhile the safe haven Japanese yen continued to weaken, falling as far as 107.08 yen, the weakest since July 23.
The British pound was last down 0.06% on the day at $1.3950 after British finance minister Rishi Sunak said that Britain’s government would borrow significantly more in the coming financial year than thought just a few months ago.
Sunak said the economy would regain its pre-pandemic size in the middle of 2022, six months earlier than previously forecast, helped by Europe’s fastest COVID-19 vaccination program.
(Reporting by Karen Brettell; Editing by Alex Richardson)
Sterling steadies vs dollar after UK budget released
By Ritvik Carvalho
LONDON (Reuters) – Sterling steadied against the dollar on Wednesday and gained against the euro after the announcement of an expansive budget designed to prop up the British economy as it prepares for a re-opening from lockdown.
The pound traded at $1.3964 by 1341 GMT, largely unchanged, after British finance minister Rishi Sunak delivered an annual budget speech in which he announced a costly extension to emergency aid programmes and tax hikes for businesses.
The currency was 0.3% higher against the euro at 86.32 pence.
“Looking at the performance of sterling over the period of the budget suggests that the detail, most of which was widely trailed, had little material impact upon GBP,” said Jeremy Stretch, head of G10 FX strategy at CIBC.
“We have seen gilts come under a little pressure as the gilt remit, borrowing levels for 2021/22 are higher than expected. Near-term risk dynamics are as important for GBP as anything the Chancellor may have announced.”
Sterling is the best-performing G10 currency this year, up about 2% versus the dollar, as investors bet the speed of Britain’s vaccination programme will enable a faster reopening of its economy, which has suffered its worst annual contraction in 300 years.
“Overall, the additional fiscal support announced should underscore the constructive outlook for GBP for 2Q, with further fiscal help facilitating the economic rebound and making GBP the outperformer in the G10 FX space,” strategists at ING said in a note. “We expect GBP/USD to breach the $1.5000 level in 2H21 and dips below $1.4000 should be faded.”
Reflation trade’s big FX winner: GBP https://fingfx.thomsonreuters.com/gfx/mkt/rlgvdezzjpo/Pasted%20image%201614771196456.png
Relief over a last-minute Brexit trade deal signed with the European Union last year and a Bank of England that has pushed back market expectations of negative interest rates has also been beneficial for the pound, which last week hit its highest in two and a half years.
Sunak said the economy will regain its pre-pandemic size in the middle of 2022, six months earlier than previously forecast, helped by Europe’s fastest COVID-19 vaccination programme.
But it will remain 3% smaller in five years’ time than it would have been without the damage wrought by the coronavirus crisis, he said. Extra support is needed now as the country remains under coronavirus restrictions.
Valentin Marinov, head of G10 FX research at Credit Agricole, warned that a premature withdrawal of fiscal support for the economy could slow and even derail the recovery at a time when post-Brexit uncertainty lingers and clouds the outlook for the services sector.
“To the extent that this also makes the BoE more cautious and thus more willing to push against any further tightening of the UK financial conditions, it could also hurt the GBP,” Marinov said.
“We have two MPC doves – Tenreyro and Haskell – speaking today and tomorrow respectively. Their comments could become the trigger for a more sustained correction lower of the overbought and overvalued GBP.”
Silvana Tenreyro, a member of the BoE’s rate-setting committee will be speaking at 1600 GMT.
After the budget announcement, money markets reflected a 10- basis-point increase in the Bank’s base rate by September 2022, according Refinitiv data.
(Refiles to add dropped word to headline)
(Reporting by Ritvik Carvalho; editing by Giles Elgood, John Stonestreet, Larry King)
Sterling steadies ahead of UK budget
By Ritvik Carvalho
LONDON (Reuters) – Sterling steadied against the dollar on Wednesday and gained against the euro ahead of the announcement of Britain’s budget for the coming fiscal year, which is expected to prop up the economy as it prepares for a reopening from lockdowns.
The pound was flat at $1.3967 by 0841 GMT, after falling to its lowest in 2-1/2 weeks on Tuesday. It was 0.1% higher to the euro at 86.45 pence.
In a budget speech at 1230 GMT, finance minister Rishi Sunak will promise to do “whatever it takes”, including a five-month extension of a huge jobs rescue plan, to steer the economy through what he hopes will be the final months of COVID restrictions.
Sunak has already racked up Britain’s highest borrowing since World War Two and he will turn to the bond markets again in his budget speech, saying the task of fixing the public finances will only begin once a recovery is in sight.
“We’re not expecting too many surprises when the Chancellor takes to his feet to deliver one of the most widely leaked budgets in history,” said Robert Alster, CIO at wealth manager Close Brothers Asset Management.
“The key focus will clearly be continued support for the economy, as we navigate our way out of lockdown. Businesses will be listening closely for the approach to business rates and VAT cuts in the coming months.”
Sterling is the best performing G10 currency this year, up about 2% versus the dollar as investors bet the speed of Britain’s vaccination programme will enable a faster reopening of its economy, which suffered its worst annual contraction in 300 years.
Relief over a last-minute Brexit trade deal signed with the European Union last year and a Bank of England that has pushed back market expectations of negative interest rates has also been beneficial for the currency, which only last week hit its highest in 2-1/2 years.
Analysts remain bullish, although in the long-term, investors may focus on Britain’s debt.
“Overall, the additional fiscal support announced should underscore the constructive outlook for GBP for 2Q, with further fiscal help facilitating the economic rebound and making GBP the outperformer in the G10 FX space,” strategists at ING said in a note to clients.
“We expect sterling/dollar to breach the $1.50 level in 2H21 and dips below $1.40 should be faded.”
(Reporting by Ritvik Carvalho; Editing by Giles Elgood)
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