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October 24th, 2019
By Scott Treacy, CFA
Institutional investors gained about $86 billion in assets during Q2 of 2019, with that gain being split almost evenly between equities and the fixed income market — a little more than $44 billion gained in equities and $42 billion in fixed income.
The U.S. corporate bond market has seen the most activity in terms of assets gained in Q2; the top 10 products in this universe saw $9 billion in inflows for the quarter. Although the top 10 in the corporate bond sector is not as strong as the top 10 elsewhere, overall managers in this universe do tend to outperform the benchmark at a median level. Even many managers performing right at the median level in this space continue to gather assets, which shows the strong demand currently in the U.S. corporate bond market.
While the most active area of asset inflows remained the equities market, fixed income was the biggest gainer during the second quarter. That was a big takeaway from our recent webinar based on data collected from an Investment Metrics report: “Institutional Insight: Quarterly Net Flows Q2 2019.” The report collected data from 4,500 financial products to glean insight into where the demand is currently for different asset classes.
Another key trend our analysis found is that there are continued active flows out of U.S. large-cap equities. Net flows have been reduced by about half since 2016, even though it still remains the best-performing area of the market. This outflow from U.S. large caps is actually a trend that goes stretching back over the past five to six years. Meanwhile, at a median level, managers in U.S. large-cap equities are underperforming the benchmark such as the S&P 500; active management performance is not currently strong. However, with so many products in this space – over 1,000 that we tracked – one must assume that active managers will eventually track to the median and come more in line with the benchmark.
Concurrently, “concentration” continues to be a major theme when it comes to large-cap equity inflows. The top 10 products in this space continue to generate a large percentage of total inflows. There is a growth preference amongst managers working in this space; we are seeing a lot of dividend yield among the top 10, for example. Overall, there’s no particular preference by investment style among the top inflows.
Regarding fixed income, in general, the types of products doing well in this universe are unconstrained products. Indeed, the industry at large has taken notice of the rising popularity of unconstrained bond funds, as investors look to them for protection amidst rising rates.
Unconstrained funds are currently offering a very good rate of return at a lower standard deviation. In fact, five of the top 10 net inflows among global fixed income funds in Q2 are unconstrained. And unconstrained funds that have done particularly well tend to have a lower duration. We should also note that a lot of the inflows in this universe are coming from non-U.S. clients.
This is but a surface level look into the insights and data we have access to at Investment Metrics. For more information, watch our on-demand webinar, where Brendan Cooper and Scott Treacy dive into Q2 2019 net asset flows from active managers across the equity and fixed income asset classes.
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