In its 2012 ‘Global Fund Flows Trend Report’, the first of this scale the firm has ever put together, Morningstar said the quest for fixed income and apparent permanent preference for less expensive funds had “transformed the economics of the industry”.
Investors’ search for cheaper funds has typically been exemplified by the movement of assets to passive products, the report continued.
In 2012 41% of estimated net inflows, $355bn, was captured by passive products and index funds grew faster than actively managed ones in every geographic region except Oceania.
The knock on effect in the past five years has been that while assets under management have increased by 39%, management fee revenue increased by only 24%.
Morningstar used the example of inflows into the top 50 non-money market funds, in terms of size, which gathered about $9.7bn in management fees in 2007, compared with the largest 50 in 2012 which took in only $8.3bn. This was despite the funds managing $1.2trn or 32% more in assets than the largest 50 back in 2007.
Healthy growth
The findings come against a backdrop of growth in the global fund management industry, which posted organic growth or 3.9% in 2012, according to Morningstar.
Excluding money market funds $565bn flowed into mutual funds during the year, but this figure fell short of 2009 and 2010, which saw $746bn and $672bn of new money respectively.
A record high of $17.1trn in assets held in long-term open-end funds was reached last year, up from its low point of $9.3trn in 2008.
But Morningstar said this should be put into context: “The hearty condition of the fund industry should not be surprising given the gift bestowed upon it by developed-world central banks.
“More than any other factor low interest rates have driven investors to seek in come and, to a lesser degree, embrace riskier asset classes than they would in a normal rate environment. The perceived safety of bonds relative to stocks should not be underestimated as a contributing factor.”
Estimated net flows into fixed income funds reached $535bn in 2012, representing almost 95% of total inflows for the year.
