The Markets February 9, 2009

Assets in Mutual Funds Worldwide Plunge in Q308

Mutual fund assets worldwide decreased 12.1% to $21.66 trillion at the end of the third quarter of 2008, according to the Investment Company Institute (ICI).
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Net cash flow to all funds was negative in the third quarter with $218 billion in outflows—the first worldwide outflow recorded since the third quarter of 2002, ICI said.

Net outflows from equity funds worldwide were $151 billion in the third quarter, compared with a net inflow of $29 billion in the second quarter of 2008. The Americas registered net flows of $95 billion out of equity funds in the third quarter, while European equity funds posted $64 billion in outflows. Flows to equity funds in the Asia/Pacific region slowed but remained positive, dropping to a $9 billion inflow in the third quarter compared with $16 billion in the second quarter, according to ICI data.

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Bond funds experienced $66 billion in net outflows in the third quarter of 2008, compared with net inflows of $14 billion in the second quarter of 2008. The Americas experienced net inflows of $15 billion to bond funds in the third quarter, down from $39 billion in the second quarter. In contrast, Europe continued to experience net outflows from bond funds, with $61 billion in net outflows in the third quarter, compared with net outflows of $39 billion in the second quarter. Bond fund flows turned negative in the Asia/Pacific region, with outflows of $21 billion in the third quarter compared to inflows of $15 billion in the second quarter.

Worldwide outflows from balanced/mixed funds were $24 billion in the third quarter of 2008, compared with approximately zero net flows in the first half of the year. Net outflows from balanced/mixed funds in the Americas were $11 billion in the third quarter, about offsetting the $11 billion inflow registered in the second quarter. European balanced/mixed funds experienced net outflows of $10 billion in the third quarter compared with net inflows of $3 billion in the second quarter.

Net flows into worldwide money market funds were $28 billion in the third quarter of 2008, compared with outflows of $70 billion in the second quarter of 2008. Both the Americas and Europe experienced inflows into money market funds, with a combined net flow of $44 billion in the third quarter compared to a combined outflow of $83 billion in the second quarter. Asia/Pacific money market funds registered net outflows of $18 billion in the third quarter after reporting net inflows of $12 billion in the second quarter.

At the end of the third quarter of 2008, 40% of worldwide mutual fund assets were held in equity funds, 18% in bond funds, and 10% in balanced/mixed funds. Money market fund assets represented 25% of the worldwide total, ICI said.

By region, 55% of worldwide assets were in the Americas in the third quarter of 2008, 34% were in Europe, and 11% in Africa and Asia/Pacific.

The number of mutual funds worldwide stood at 69,477 at the end of the third quarter of 2008 – 40% equity funds, 21% balanced/mixed funds, 18% bond funds, and 5% money market funds.

The ICI data is here.

Products February 9, 2009

Invesco Launches Risk Premium Capture Strategy

Invesco's Global Asset Allocation Group has unveiled Premia Plus, a risk premium capture strategy.
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An Invesco news release said the new offering is designed to take advantage of a market’s risk premium and diversification with the intent to raise the average excess return above cash and reduce the range of outcomes. The strategy uses proprietary risk management and rebalancing techniques to generate equity-like returns with bond-like risk.

The strategy invests in a balanced set of asset classes: equities, government bonds and commodities. The weights of the asset classes are set such that each contributes a similar amount of risk to the overall portfolio in an effort to defend against negative economic outcomes, the announcement said.

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Premia Plus targets a return of cash plus 6% with total volatility of 8%. The strategy employs a long-only implementation that can be used as a stand-alone investment or combined with other alpha or beta strategies, similar to fund of hedge funds, Invesco said.

“The essence of the product is efficiently capturing risk premia, the excess return that investors receive for owning risky assets, above the cash return,” said Scott Wolle, CIO of Invesco Global Asset Allocation, in the news release.

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