It’s not easy being an active manager these days. Advisors are becoming more apt to buy cheaper exchange traded funds, which now come in all shapes and sizes. ETFs likely took a sledge hammer to the mutual fund industry again in 2016.
Last year, a record $340 billion was closed out of actively managed funds, while passive funds (read, ETFs) gained $505 billion, Morningstar reported in their March issue of FundInvestor.
Broad layoffs were reported from big firms like BlackRock and PIMCO, with staff shrinkage ranging from 2% to 10%. Most layoffs were on the money management side. In aggregate, these downsizing firms accounted for more than one third of active fund outflows in 2016, according to Morningstar.
The report singled out a few players in the industry. Putnam Investments active money management shed key positions. Chief investment officer Walter Donovan, four portfolio managers, and nine equity analysts were cut loose. Their equity team still has 33 members, but if this keeps up, Putnam fund managers may not need to rely on in-house equity researchers anymore.
RIAs bought mutual funds for generations. They were the only game in town. Until State Street in Boston launched its first SPDR fund. The rest is history. If a large cap mutual fund manager can’t beat the SPDR S&P 500 (
SPY 515,71 +2,85 +0,56%), why pay one and a quarter percent in management fees for it?
Some fund managers have become more creative, incorporating sophisticated trading strategies that rely on proprietary models. The problem with these strategies is the cost. Quantitative analysis and algorithms take time to build. Some of these funds are front loaded with a 5% fee. No matter how fancy their strategy – downward protection; multi-factor; commodity hedge; alternative emerging markets – unless there is nothing similar in the passive fund universe, RIAs are preferring to keep it simple.
The layoffs serve as ample evidence.
Poor performance and team turnover at Waddell & Reed (
WDR 24,98 -0,01 -0,04%) have led to outflows and layoffs. Michael Avery, former president and lead manager on the firm’s largest strategy, retired last year. They have lost one fund manager a year since 2013, for a total of three between then and 2016, according to Morningstar. Their underperforming funds are experiencing massive redemptions, which forced Waddell & Reed to reduce its analyst staff by seven members in 2016.
Five Fund Managers With Big Outflows*
|
2016 Active Fund Outflow |
| BlackRock |
18.6 billion |
| Waddell & Reed |
18.01 billion |
| PIMCO |
16.78 billion |
| GMO |
15.67 billion |
| Putnam |
7.32 billion |
*Source: Morningstar Direct. List only includes funds with investment management team layoffs in 2016.
It’s not easy being an active manager these days. Advisors are becoming more apt to buy cheaper exchange traded funds, which now come in all shapes and sizes. ETFs likely took a sledge hammer to the mutual fund industry again in 2016.
Last year, a record $340 billion was closed out of actively managed funds, while passive funds (read, ETFs) gained $505 billion, Morningstar reported in their March issue of FundInvestor.
Broad layoffs were reported from big firms like BlackRock and PIMCO, with staff shrinkage ranging from 2% to 10%. Most layoffs were on the money management side. In aggregate, these downsizing firms accounted for more than one third of active fund outflows in 2016, according to Morningstar.
The report singled out a few players in the industry. Putnam Investments active money management shed key positions. Chief investment officer Walter Donovan, four portfolio managers, and nine equity analysts were cut loose. Their equity team still has 33 members, but if this keeps up, Putnam fund managers may not need to rely on in-house equity researchers anymore.
RIAs bought mutual funds for generations. They were the only game in town. Until State Street in Boston launched its first SPDR fund. The rest is history. If a large cap mutual fund manager can’t beat the SPDR S&P 500 (SPY 515,71 +2,85 +0,56%), why pay one and a quarter percent in management fees for it?
Some fund managers have become more creative, incorporating sophisticated trading strategies that rely on proprietary models. The problem with these strategies is the cost. Quantitative analysis and algorithms take time to build. Some of these funds are front loaded with a 5% fee. No matter how fancy their strategy – downward protection; multi-factor; commodity hedge; alternative emerging markets – unless there is nothing similar in the passive fund universe, RIAs are preferring to keep it simple.
The layoffs serve as ample evidence.
Poor performance and team turnover at Waddell & Reed (WDR 24,98 -0,01 -0,04%) have led to outflows and layoffs. Michael Avery, former president and lead manager on the firm’s largest strategy, retired last year. They have lost one fund manager a year since 2013, for a total of three between then and 2016, according to Morningstar. Their underperforming funds are experiencing massive redemptions, which forced Waddell & Reed to reduce its analyst staff by seven members in 2016.
Five Fund Managers With Big Outflows*