Products May 2, 2019

FTSE Russell Adds Investment-Graded Index

The index, which also tracks tax-exempt U.S. dollar-denominated bonds, will include sub-indexes to allow for a thorough analysis of the municipal bond market structure. 

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FTSE Russell has launched the FTSE Municipal Tax-Exempt Investment-Grade Bond Index. The index tracks the market for tax-exempt U.S. dollar-denominated bonds issued by municipalities domiciled in the U.S. and U.S. territories with an investment grade credit rating. The index is a new barometer for the large and diverse fixed income market, which is compact by design to allow for ease of replication, without compromising representativeness.

The U.S. municipal bond market is comprised of a diverse mix of issuers and security types. The new index can be used as the foundation for a wide range of custom solutions based on attributes, including credit quality, state, municipal sector classification and maturity. The offering also includes granular sub-indexes to allow for greater visibility and analysis of the municipal bond market structure.

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 “The US Municipal bond market is a significant domestic fixed income market, and the launch of our new index reaffirms our commitment to expand our global fixed income coverage,” says Scott Harman, managing director, fixed income product management. “FTSE Russell has been steadily growing its multi-asset capabilities offering comprehensive coverage across all major public markets and the new index, which tracks one of the largest bond markets in the world, can be used as the basis for a wide range of custom solutions.”

According to FTSE Russell, features of the new index include: tracking for a more liquid subset of the overall outstanding municipal universe based on higher deal and issue size thresholds; back-testing data available through December 31, 2012; customization options; evaluated pricing service by Refinitiv, a financial markets data and infrastructure provider, at local market close (4 p.m. EST); and more.

More information on the index can be found here.
In Practice May 2, 2019

RIA M&As Hit Record High for Fifth Consecutive Year

However, fewer RIAs and fee-based advisers expect consolidation to increase in the next 12 months, compared to five years ago.

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Mergers and acquisitions (M&As) among registered investment advisers (RIAs) hit a new high for the fifth consecutive year in 2018, according to a study of 1,600 RIAs, fee-based advisers and individual investors commissioned by Nationwide Advisory Solutions and conducted online in February and March by The Harris Poll.

Last year, RIA M&As rose by 20%. However, fewer RIAs and fee-based advisers expect consolidation to increase in the next 12 months, compared to five years ago, with 59% expecting deals to increase, down from the 68% who thought so in 2018—following a peak of 70% in 2017, 68% in 2016 and 65% in 2015. Since the study was commissioned five years ago, this is the lowest percentage of RIAs and fee-based advisers who expect M&A deals will rise in the coming year.

Nationwide says this decrease may reflect advisers’ concern that the market and the economy may erode valuations and, thereby, decrease opportunities for transactions. In fact, 56% think the market will become more volatile in the next 12 months, and the same percentage is concerned that there could be the beginnings of a bear market in the coming year. Fifty-four percent are worried about a recession.

“Since launching our Advisor Authority study in 2015, a growing number of RIAs and fee-based advisers were saying that M&A activity would increase, so this year’s sharp reversal in the trend could be an indicator of greater uncertainty about the market and the economy,” says Craig Hawley, head of Nationwide Advisory Solutions. “But at the same time that RIAs and fee-based advisers are less bullish about the pace of consolidation, the majority still say that these deals will have a positive impact on their business. Consolidation among firms is driven by a variety of factors—including increasing competition, rising fee compression, the need for greater scale, as well as succession planning for a generation of older advisers.”

The 51% of RIAs and fee-based advisers who believe that M&A activity will benefit their businesses is up slightly in recent years—(51% as well in 2018, 49% in 2017 and 47% in 2016). The reasons why they believe M&A activity will positively impact their business are being able to offer more resources to clients (31%), having more resources to expand and scale their businesses (also 31%), being able to create a succession plan (28%), having more opportunities to sell their business (27%) and having opportunities to buy another practice (26%).

Among the most successful advisers—those earning more than $500,000 and managing $250 million or more in assets under management—71% expect RIA M&A to increase, down from 75% in 2018, 76% in 2017, 73% in 2016 and a peak of 77% in 2015.

Successful advisers are also more likely to say that M&As will impact their business (64%).

Twelve percent of RIAs and fee-based advisers feel negatively about the impact of M&As. Thirty-three percent of these advisers say they prefer to manage their business independently without oversight. Thirty-two percent said that M&As make it more challenging for small, independent firms to compete with the giants, and 32% said M&As might increase pressure on them to sell products that might not be right for clients.

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