How much to charge for an investment product is a decision asset managers wrestle with daily, and the financial implications of that decision are staggering. We analyze a universe of more than 20,000 global shareclasses of open-end funds and ETFs through the Flowspring Global Pricing Model and Flowspring Global Flow Model to make sense of the rapidly changing pricing landscape for investment products.
The number of mutual funds and ETFs has grown significantly over the past several years. Many of these new launches struggle to gain assets in the increasingly competitive asset management environment. Consequently, rationalization discipline is key to maintaining a strong product line-up that can grow, remain resilient to market conditions, and accrete value to a firm’s brand. We’ve developed the Flowspring Rationalization Recommendation to help asset managers with a starting point for analyzing struggling funds.
An asset manager could have the most attractive product line-up among all its competitors, but without distribution, they will flounder. The necessity of distribution is only growing stronger as the industry becomes more competitive. Using the Flowspring Global Flow model, we quantify the skill of distribution companies to determine the most elite fund distributors thus far in 2018.
It’s no secret that independent 3rd party fund ratings influence the way investors think about mutual funds and ETFs. The Morningstar Star Rating, in particular, has shown to be predictive of future fund flows. We examine this relationship in more depth and find some interesting nuance to the link between the Morningstar Star Rating and fund flows.
The study of fund flows informs nearly all product decisions at asset management firms. The prevailing method of understanding flows is to aggregate historical flows by category. We show that this method is deeply flawed because it does not properly account for other flow drivers that are highly correlated with fund categories. Moreover, it does not properly relate past flows to future flows, potentially leading to disastrous conclusions.
The ability to price funds appropriately is paramount to the continued success of asset management firms. That task has become more difficult recently as major shifts are occurring in the price elasticity of demand for managed investment products. We examined trends in price elasticity across our global database of funds using the Flowspring Global Flow model.
The fund landscape has undergone incredible transformation in the last 10 years, largely due to the divergence of newly launched funds. Over the last 12 months, asset managers launched 3,087 new open end fund and ETF shareclasses. We analyze the characteristics of new funds through time and identify some key trends.
Market and regulatory forces combine in the asset management industry to create significant advantages to scale. These advantages make incremental growth easier for large firms, while stifling growth for small firms and discouraging entry into the market for potential new firms. We examine this phenomenon using 19 years of data for the global open end mutual fund and ETF universe.