May 3, 2011

Small Firms Outpace Larger Firms in AUM Growth

Equity funds push small firms to the top

Of the 25 fastest growing fund firms identified by Strategic Insight, 20 had less than $5 billion in stock and bond fund assets under management, the research firm announced on Tuesday.

Strategic Insight analyzed managers of stock and bond funds for the 12-month period that ended March 2011, and ranked them by net flow growth rate. The ranking excluded very small managers, those with less than $1 billion in assets under management.

What's behind smaller firms' growth? According to Strategic Insight, smaller fund managers’ focused and specialized investment skills, coupled with high-conviction philosophies, give small managers an edge over other firms.

“The road to success among these firms highlights the unique capabilities of such fund managers and the continued demand for this type of skill among advisors and investors,” Dennis Bowden, senior research analyst at Strategic Insight, said in a press release. “So the fact that smaller fund managers dominate the list of fastest-growing firms is not surprising.”

DoubleLine Capital topped the list of fastest-growing firms, a feat made more remarkable when one considers the firm is only in its first year of operation. More than one-half of bond fund deposits among the 25 fastest-growing firms are from DoubleLine, and with $5.9 billion in net inflows since the firm's inception in April 2010, Strategic Insight found it is the fastest-growing U.S. mutual fund manager ever during its first year of operation.

Equity funds were largely behind small firms' success. Of approximately $56 billion in total net inflows, "a large majority" of commitments were to equity funds, according to the company, and almost half went to U.S. equity funds. International equity funds garnered $17 billion in the year ending March 2011.

ETFs were also at play in the top 25 firms' rapid growth. Strategic Insight noted that several of the firms in the top 25 specialize in ETFs. Global X Management, ETF Securities USA, JP Morgan Chase and ALPS Advisors ranked in the top 10 fastest growing managers thanks to their strong ETF inflows, according to the report.

In the industry overall, though, bond funds are the clear winner. Taxable bond funds have over $200 billion in net inflows, or about 60% of total net deposits. Among Strategic Insight's 25 fastest growing managers, however, bond funds account for just $11 billion of total net inflows.

SunStar Strategic, a consulting firm that advised Strategic Insight on its research, found that wider distribution through major platforms also contributed to small firms' growth, noting that many of the top 25 managers "focused on providing consistent web posts, and frequent white papers, press releases and emails" to communicate with their clients.

As of early May, Strategic Insight found, the global mutual fund industry reached an "all-time record" of almost $31 trillion in assets.

“Particularly in difficult times, it is important that advisors and investors are reassured that their fund managers stick to their discipline,” Dan Sondhelm, senior vice president and partner at SunStar, said in a press release.

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