Week in Review
November 26, 2007
After Two Month Suspension, China Again Approving Mutual Funds
China regulators put new mutual fund offerings on the back burner over the past two months in an attempt to cool down what appears to be an overheated market, but have just allowed ICBC Credit Suisse Asset Management's Core Value Funds and Golden Eagle Asset Management's Component Stocks Preferred Funds to reopen, Shanghai Daily reports.
The China Securities Regulatory Commission had suspended the issuance of new mutual funds in September. As of that date, China's mutual funds had $441.6 billion in assets under management, four times the assets in the beginning of the year.
The reason China regulators decided to permit new fund sales to resume is due to "the recent tumbles on the stock market, [which] have boosted the need to resume the sales of new fund products and give the market a lift," said Dai Ming, an analyst with Kingsun Investment Management.
Top Three Giants' Market Share Now at Nearly 40%
The market share of Fidelity, Vanguard and American Funds in the mutual fund industry continues to expand, with the three giants' market share now at 37.5%, up from 30% 10 years ago, according to Financial Research Corp.
Year to date through September, those three companies took in a third, or 33 cents, of every dollar invested in the 50 biggest fund companies. That's up slightly from 31 cents of every dollar in 1997.
"It's a brutal marketplace. It truly is a David and Goliath' story," Jeffrey Dunham, chief executive officer and president of Dunham & Associates Investment Counsel, told Investment Weekly. "The market does favor these massive-scaled fund families. The vast amount of flows goes to the biggest funds."
Some believe this increasing dominance will prompt some fund companies to exit the business. "There are a lot of small and midsize mutual fund companies trying to decide if it makes sense to stay in the mutual fund business," said Dan Sondhelm, vice president at SunStar. "Some of it is because they're looking to merge with another company that has the scale to do the distribution."
Many smaller fund companies have had a difficult time bearing the cost of employing a chief compliance officer, added Christine Benz, director of mutual fund analysis at Morningstar.
Chuck Freadhoff, a spokesman for American Funds, noted how it is possible for large fund companies to charge lower fees because of economies of scale, and said that this is an advantage investors should consider. "We believe that there are economies of scale that favor large fund families," Freadhoff said. "For example, if you had a global research network, as we do, that comes at a cost. When those costs are spread among more shareholders, the cost per shareholder declines."
Asset Management M&As Hit New $46.7B Record
Despite turmoil in the capital markets, mergers and acquisitions among asset management firms have hit a new record of 208 transactions worth $46.7 billion so far this year, according to Putnam Lovell.
Last year, there were a total of 192 such transactions with a deal value of $44.1 billion.
Cross-border transactions represented 40% of the deals among asset management firms.
"Long-term strategic concerns, amplified by the subprime-related fallout in the financial sector, will continue to stimulate deal flow in asset management during 2008," said Ben Phillips, managing director and head of strategic analysis at Putnam Lovell. "Companies emerging unscathed from the current crisis will seek to press their advantage and expand through acquisitions," Phillips added. And among those financial services companies hit with credit woes, they may sell their asset management divisions "to pay for their credit excesses," he said.
In terms of assets under management acquired, however, 2007 will not exceed the record $2.6 trillion in 2006 due to two of the largest transactions in history, Phillips said. Those were Bank of New York's acquisition of Mellon Financial and BlackRock's purchase of Merrill Lynch Investment Managers, which together represented $1.5 trillion in assets.
Through the middle of this month, the amount of assets acquired was $1.8 trillion.
T. Rowe, Principal, Fidelity Target-Date Funds Lauded
Target-date funds from T. Rowe Price, Principal Investors and Fidelity are the best, according to analysis of target-date funds by Lipper. On the other hand, those from Wells Fargo, MassMutual and NestEgg made the bottom of the list.
Lipper analyzed 30 target-date funds designed for people planning to retire in 2030 and ranked them by performance for each of the past 12 quarters ended this past September.
"Clearly, there is more to choosing a target-date fund than using a ranking based on past performance, but our rankings are a good way to winnow the large group of possible target-date funds to a more manageable handful," said Lipper Research Director Andrew Clark.
Fund Performance Improving at Fidelity