Many of the world’s asset managers may need to work harder for their money.
Their profits revisited peak levels in 2014, and assets under management rose to a third consecutive record, at $74 trillion. But that growth came largely from rising global asset values. At the same time, a continued shift into lower-cost products, such as exchange-traded funds (ETFs), pinched net revenue growth, and the amount of net new assets flowing into the firms barely budged, according to Boston Consulting Group’s global asset management report.
ETFs have been taking the investment world by storm. In the U.S, they made up 50 percent of all 2014 fund flows. Investors are benefiting from a rapid race to the bottom in fees as firms fight to gain market share. Retail fees on passive equity products such as index funds and ETFs fell 0.03 percentage point in 2014, following a 0.04-point fall in 2013. That adds up to a 20 percent drop in two years. Fees on passive fixed-income products, which include more esoteric fixed-income ETFs with generally higher fees, rose by 0.04 percentage point.
While the major trend is the move into passive products, almost all of Dodge & Cox’s $26 billion gain flowed into two actively managed funds. In 2014, its Income Fund gained about $13 billion in assets in the wake of Bill Gross’s departure from Pimco Total Return. Another $11 billion went into its International Stock Fund, which closed to new investors in mid-January when assets reached about $66 billion (they’ve since grown to $71.5 billion).