Bond funds have enjoyed the greatest inflows in recent years but the concentration within the asset class is pronounced, according to Lipper's latest analysis of the European funds industry.
Bond funds have enjoyed the greatest inflows in recent years but the concentration within the asset class is pronounced, according to Lipper’s latest analysis of the European funds industry.
Looking at the different pressures on fund management companies in balancing business and investor interests, Lipper found that bond funds recorded the highest inflows with a strong asset class concentration.
Data by Lipper showed that in 2011, among 2,546 bond funds that enjoyed inflows, nearly 50% of flows (€83.4bn) moved into just over 5% of funds (145 in total).
Comparing gross and net returns for actively managed equity funds domiciled in the UK, over 10 years the average fund returned 71.2%, while the average fund manager returned 98.7%. On average, costs have reduced returns by 27.9% over ten years.
Meanwhile, the willingness of investors to redeem from funds that under-perform, sometimes over short time periods, led to a rate of redemptions far higher than in the US mutual funds industry.
“This has averaged 55% a year over the past three years for European cross-border funds, but only 30% in the US,” Lipper said.
According to the research, fees will only matter significantly more to fund companies if the industry business model is fundamentally different.
“This reminded me of the legend of King Sisyphus, punished by the gods by being made to roll a huge stone up a hill. Before he could reach the top, the stone would roll back down, forcing him to begin again the next day. The research prepared for this paper suggests that fund companies, like Sisyphus, remain caught in a cycle of new products, new performance fluctuations, and the quest for new clients with the resulting developments in fees that I have identified,” said Ed Moisson (pictured), Lipper’s head of UK and cross-border research.
He added: “This analysis suggests that fund companies care about clients as far as it makes business sense to do so. To do otherwise would be to make business decisions from a moral perspective – or for fiduciary responsibility to be extended to include fund fees. But fee levels cannot be viewed in isolation and one must also consider the challenges that fund management businesses face.”