US fund industry displays 'barbell' trend

weightlifterThe gap between low-cost passive products, such as exchange-traded funds (ETFs), and an increasing number of specialised funds like absolute return vehicles which command higher fees, has widened, says new research.

“A barbell trend emerged in 2013,” says Cerulli Associates, a research firm. “On one hand, hands-off passive management among indexed products fuelled a fee race to the bottom. On the other, investors paid a premium to glean more specialised exposures, including short-duration and unconstrained fixed income.”

Total fund assets in the US grew 20% last year, says the firm, with much of the gain due to asset growth in passively managed products. ETF equity strategies alone took in an average net inflow of $17.9 billion (€13.2 billion) each month.

Asset managers have sometimes expressed concern about the rise of passive investing, fearing that reduced fees would squeeze their profit margins. However, the research suggests investors are still willing to pay premium rates for products that answer their specific needs.

Multi-asset funds, particularly those with an absolute return target, are seen as a fund type that can still justify high fees, because these funds can offer cheap portfolio diversification and the promise of positive returns even in down markets. The Global Absolute Return Strategies Fund from Scottish asset manager Standard Life Investments is one fund that has attracted large inflows in recent years.

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