Performance Magazine - issue 30


Performance Magazine - issue 30

September 2019

The investment management industry is in a period of rapid change, driven by shifting investor preferences, margin compression, continued regulatory developments, and advancing technologies.

Investor preferences continue to adapt. In 2018, 16 of the top 20 net flow funds were passive mutual funds while Exchangetraded Funds (ETF) continued to gain ground. The advent of zero cost ETFs may accelerate this growth further. According to State Street Global Advisors’ estimates and Investment Company Institute's data, global ETF assets could touch the $25 trillion mark by the end of 2025, up from $4.8 trillion in 2018. In addition, active funds have underperformed benchmarks. Studies have shown that 86.7 percent of US active funds have underperformed their benchmark , on a net-of-fees basis, over the ten-year period ending in 2017.European funds have similar results: 85.4 percent of actively managed European equity funds underperformed over the same period.

Retail customer preferences are also diverging. Most Millennials and Gen Z have made a quantum change in their investment practices from those of their parents. These cohorts will eventually hold a significant share of global investable assets as the multi-trillion dollar inter-generational wealth transfer progresses in the US and Europe. They tend to prefer engaging with online and mobile channels, a low minimum initial investment amount, and 24/7 access to investment advice on smart devices.

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