The Markets November 15, 2013

Equity, ETFs Expected to Attract $450B This Year

Equity funds and exchange-traded funds (ETFs) are on track to attract $450 billion in 2013.
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Equity mutual funds and ETFs aggregately attracted $60 billion in October, exceeding September’s net intake of $40 billion, according to Strategic Insight (SI), an Asset International company. “This is the year for stock mutual funds. Investor confidence continues to trigger higher stock fund flows, which are projected to top $450 billion—more than the prior four years combined,” says Avi Nachmany, Strategic Insight’s director of research.

SI research shows approximately $45 billion was net deposited into long-term stock and bond funds (including ETFs) in October, increasing year-to-date net intake to $404 billion. Since September 2008, investors have deposited a net $1.8 trillion into stock and bond mutual funds and ETFs, signifying the vehicles positioning as a core portfolio holding in wealth accumulation.

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In addition, while bond mutual funds and ETFs overall experienced $15 billion of net redemptions in October, on a year-to-date basis demand remained positive through October at $12 billion. More than one-third of all individual bond funds have posted positive net flows over the trailing three months, after the spring’s interest rate increases. Taxable bond strategies leading inflows in recent months included floating rate, corporate short maturity, non-traditional/unconstrained, high yield, Global bond and strategic income.

U.S. equity funds, excluding ETFs, netted $31 billion in October, driven by near equal demand across domestic and international strategies. Research found flows' leading themes of 2013 include emerging markets equity, growth and income, and global asset allocation.

Including active and passive mutual funds (excluding ETFs), Vanguard, PIMCO and Fidelity led monthly net inflows across domestic and international equity strategies. BlackRock, Goldman Sachs and J.P. Morgan were the monthly flows leaders for bond fund flows during the month.

U.S. equity exchange-traded products (ETPs), including ETFs and exchange-traded notes, netted $29 billion during the month. Growth and income, mid cap equity, and international European equity were the top objective leading equity ETP flows in October.

Year to date through September, intermediary-sold channels (including private banks, independent, regional, registered investment advisers and most wirehouse broker/dealers) aggregately drove $211 billion of equity mutual fund and ETF inflows. During September, intermediaries captured $20 billion of equity flows, half of which were actively managed strategies. Among intermediary-sold actively managed equity funds, flows leading strategies through September included international growth, emerging markets, and global asset allocation.

The distribution channel data is attributed to Strategic Insight Simfund Pro, 7.0 / Access Data, a Broadridge company. Strategic Insight is a provider of mutual fund industry research and business intelligence. More information about the firm can be found here.

Data & Research November 14, 2013

Retaining Retirement Savings from Job to Job

Research from the Employee Benefit Research Institute (EBRI) reveals that more employees are preserving their retirement savings as they change jobs.
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A recent analysis from the Washington, D.C.-based EBRI indicates that the preservation of retirement benefits appears to have improved between 1986 and 2012. In addition, more employees who spent their retirement savings used it to improve or enhance their financial situation, choosing to pay down debt or buy a home, rather than on pure consumption.

Using U.S. Census Bureau data, EBRI analyzed how employees take lump sum distributions from their retirement plans when they change jobs. When retiring or changing jobs, a person has options for their retirement account such as:

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  • Leaving the money in their current plan;
  • Rolling it over to another tax-qualified savings vehicle, such as another employer-sponsored plan or individual retirement account (IRA);
  • Cashing it out to spend or invest in a different manner than through a tax-qualified savings vehicle; or
  • Some combination of the above choices.

“What workers choose to do with their retirement plan assets upon job change can profoundly affect their financial resources in retirement, particularly in the case of younger workers and those with large balances,” says Craig Copeland, senior research associate at EBRI and author of the report. “While improvement has been made in the percentage of employment-based retirement plan participants rolling over all of their balances on job change, this behavior varied significantly across participants’ ages at the point of distribution and the amount of the distribution.”

The EBRI research notes that the percentage of lump sum recipients who used the entire amount of their most recent distribution for tax-qualified savings has increased sharply since 1993. Well over four in 10 (45.2%) of those who received their most recent distribution through 2012 did so. This is compared with 19.3% of those who received their most recent distribution through 1993 and 35.4% through 1998.

Just 7.5% of recipients whose most recently received distribution came in 2012 spent the money entirely on consumption. This is compared with 22.7% for those who received a distribution through 1993 and 15.1% through 2003.

As to what plan sponsors should do in light of these findings, Copeland told PLANADVISER that these new employees should be encouraged to participate in their current employer’s retirement plan.

“While more assets are good for the plan as a whole, the main benefit of participation for employees is the ability to consolidate their portfolio, which may be scattered in separate retirement vehicles,” Copeland says.

He added that this centralization of investments can also provide employees with better guidance on what to do with their money, since the advice for handling a single, large balance could be substantially different than what to do with multiple, smaller balances.

In terms of whether plan sponsors need to step up efforts to educate employees about what their retirement plan and investment options are, Copeland says employees coming in with balances from other plans have money that needs to be managed.

"These employees need to know all the options that will help them with successful financial planning and a successful future,” Copeland says.

With regard to whether plan sponsors need to provide employees with better access to online guidance and investment advice, Copeland says delivery of such tools online seems better suited to younger employees, who have more trust in them.

"Older participants seem to prefer face-to-face meetings and print materials," Copeland says. "In any case, employees must understand that they will need to build a nest egg that will last them throughout their retirement.”

Copeland adds that the more specifics that plan sponsors can show employees, especially in terms of personalized goals and advice, the better. Participants are more comfortable saving, he says, the better they understand the investment process.

More information about this research can be found under the title “Lump-Sum Distributions at Job Change, Distributions Through 2012,” which appears in the November EBRI Notes on the EBRI website.

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