Fund Manager Survey: Global Economy May Wane but Recession Will Be Avoided

(August 17, 2011) — Manager optimism about the global economy has declined significantly in August, a survey by Bank of America Merrill Lynch has revealed.

The firm’s latest monthly study — conducted August 5-11 in a survey of 244 fund managers overseeing $718 billion — revealed that a net 13% of managers believe the global economy will experience weaker growth compared with a net 19% in July who were confident the economy would improve.

“Flows out of equities into cash have reached capitulation levels, especially in the US but it’s significant that a revival in optimism towards China has survived the global correction,” said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research, in a statement. “Investors are waiting for convincing, coordinated action from governments before recommitting their cash to equities,” added the firm’s Gary Baker.

Meanwhile, a net 42% of managers said a global recession is still unlikely in the next 12 months.

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Regarding US sentiment, asset allocators have reduced their positions in the US more aggressively than in any other region and at the sharpest rate the survey has ever recorded. According to the study, asset allocators have moved slightly underweight US equities.

The eurozone, however, seems to have avoided the global equities sell-off, the report found. “The panel remains underweight eurozone equities, but the net percentage underweight the region has fallen to 15% in August, from 21% in July. Within Europe, however, the story has darkened. A net 71% of the regional panel expects the European economy to weaken, up starkly from a net 22% in July; although, a strong majority rejects the idea that Europe will go into recession.”

The study also revealed more positive views toward China. A net 11% of managers in Asia believe China’s economy will weaken, down from a net 24% in July.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

According to a report by consultant McKinsey & Co, global ETF assets under management are expected to grow to as much as $4.7 trillion by the end of 2015.

(August 17, 2011) — Global assets in exchange-traded funds (ETFs) are expected to reach $4.7 trillion in four years, according to a report by consultant McKinsey & Co.

The report — titled “The Second Act Begins for ETFs” — claims that assets under management in ETF products, including exchange-traded commodities and exchange-traded notes, have ballooned 31% from 2000 to 2010. This compares with an AUM growth of about 5% to 6% for mutual funds during the same time period. Furthermore, McKinsey & Co.’s research notes that the next phase of ETF growth will be characterized by heightened competition, along with an increase in active ETFs and globalization of the marketplace. “ETFs are now a hotbed of competition,” the report says, “with an expanding and aggressive array of competitors.”

Previously, a report by BNY Mellon and aiCIO‘s sister company Strategic Insight — which analyzes the factors fueling the rapid expansion of the ETF market and how asset managers can profit from the expansion — predicted similarly optimistic findings. In a report published last month, the firms found that ETF assets will reach $2 trillion by 2015.

The report — titled “ETFs 2.0: The Next Wave of Growth and Opportunity in the U.S. ETF Market” — revealed that ETF assets grew by 28% to just more than $1 trillion in 2010, down from the 47% growth rate in 2009. Furthermore, roughly half of the U.S. ETF assets came from institutional clients.

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According to Loren Fox, senior research analyst at Strategic Insight and an author of the report, investors are increasingly willing to use ETFs following the global financial crisis as they are increasingly willing to pay more for innovative products that promise greater return and lower volatility.

“The next wave of growth for ETFs is being driven by new asset classes, new indexes and new ways to use ETFs as tools for portfolio construction,” said Joseph Keenan, head of global ETF services at BNY Mellon Asset Servicing, in a release. “The ever increasing sophistication of these newly created ETFs can pose operational and distribution challenges for asset managers. However, with detailed planning and a focused strategy, a variety of innovative exchange-traded products can be brought to market to effectively meet investors’ needs.”

The report follows a recent Greenwich Associates study that revealed that institutional investors are increasingly bullish on using ETFs in their portfolios.

“Perhaps even more telling than those findings is the fact that not a single asset manager reported plans to cut ETF allocations in the coming two years, and less than one in 10 institutional funds plan to reduce allocations to ETFs in that period,” says Greenwich Associates consultant Andrew McCollum.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742