Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 19

Overview of global fund investment trends

Morningstar Global Director of Fund Research Scott Burns recently gave a presentation at the Australian Morningstar Investment Conference discussing worldwide managed fund investment trends. The following are the key findings.

Fixed income in favour

The first major trend is that despite the headlines of economic doom and gloom, worldwide managed fund assets are continuing to grow at record levels, up from approximately $US16 trillion at 31 March 2007 to approximately $US24 trillion at 31 March 2013, notwithstanding the interceding global financial crisis. Similarly, worldwide flows to managed funds also remain extremely healthy.

The strongest flows were to fixed income funds, while there have been pronounced outflows from equities funds. Over the year to 31 December 2012, for example, fixed income funds globally attracted an inflow of approximately $US535 billion, while approximately $US125 billion flowed out of equities funds.

The estimated net flow to the US Fixed Income category in 2012 of $US227 billion was three-and-a-half times greater than 2011's $US64 billion net flow. The increase was even greater in the Emerging Markets Fixed Income category, where 2012's $US60 billion net flow was more than six times greater than 2011's $US9 billion, while the High Yield Fixed Income category attracted approximately $US85 billion in 2012 ($US23 billion in 2011).

The movement of money out of equities fund categories was equally pronounced. An estimated $US38 billion flowed out of the US Equity Large Cap Growth category in 2012, on top of 2011's $US33 billion outflow. The pattern was the same in the US Mid- and Small-Cap fund categories. In the Global Equity category, there were outflows of $US25 billion in 2011 and $US17 billion in 2012. In sum, investors globally have favoured fixed income funds, despite low global bond yields, and moved decisively away from sharemarket exposures, despite recent market highs.

Biggest getting bigger and taking more of the pie

Another key development has been the establishment of a 'winner takes all' trend among global fund managers. The world's largest fund manager, index giant Vanguard, increased its share of global managed fund assets from 9.27% ($US1.36 trillion) at 31 December 2011 to 9.62% ($US1.62 trillion) at 31 December 2012. PIMCO's share over the same period increased from 3.67% to 4.18% (from $US540 billion to $US707 billion). These two fund managers together accounted for a third of all managed fund inflows globally over the year to 31 December 2012, significantly outpacing their rivals among the world's largest fund managers.

Vanguard and PIMCO have over the past 20 years consistently increased their portions of the global managed funds pie. Vanguard's share of world managed fund assets has grown from just under 8% in 1993 to almost 18% in 2012, and PIMCO has grown from under 1% to over 5%. Fidelity's share of global fund assets has fallen from over 14% in 1995 to 9% in 2012.

The rise of the passive fund

Arguably the most significant development in the worldwide funds industry has been the surge since the onset of the global financial crisis in assets being invested in passive over actively-managed offerings.

In 2007, approximately $US220 billion was directed into index funds and approximately $US880 billion into actively-managed vehicles. In 2010, however, the approximately $US250 billion investment into index funds was more than three times the $US80 billion placed into active funds, while in 2011, just over $US200 billion was invested in index funds, while there was an outflow of about $US100 billion from active managed fund categories.

Index funds are also steadily gaining ground in terms of share of global managed fund assets – among non-US-domiciled equities funds, for example, index vehicles have increased their share of total assets from just under 10% in 2007 to just under 20% by 2013, as shown below.

Non-US-domiciled index funds share of total managed fund assets has doubled since 2007

Looking across the world regions, indexing is gaining share everywhere except Australia and New Zealand. In 2012, this was the only region to experience a small outflow from index funds. In Asia, index funds' estimated net flow of $US16 billion in 2012 was more than twice the $US7 billion attracted by active funds. This was echoed in Europe, where index funds took in $US23 billion ($US17 billion for active funds), and in the United States ($US259 billion estimated net flow to index funds in 2012 over $US203 billion to active funds).

A noticeably lower proportion of Oceania's managed fund assets is invested in index strategies than is the case in a number of other world regions. Passively-managed assets accounted for 24% of US and 22% of Asian managed fund assets at 31 December 2012, for example, but only 8% of fund assets in Australia and New Zealand.

Other noteworthy investing developments have included moves to incorporate alternative assets into investment portfolios; a shift to more active asset allocation at the overall portfolio level, but with greater use of passively-managed underlying asset class exposures; and a focus on ensuring that active management is truly active – investors are not prepared to pay alpha prices for beta.

Shift away from fund commissions

Another major global trend is legislative and regulatory intervention away from fund commission payments. Australia's Future of Financial Advice reforms mirror developments elsewhere – for instance, the Dutch financial services regulator has banned fund commissions effective from 1 January 2014. In the United States, the proverbial 'invisible hand' of the market is driving commissions towards extinction – the percentage of managed fund assets with loads (commissions) has fallen from around 53% in 1993 to under 30% by 2013.

There are also wider moves towards pan-European managed fund regulation as part of the European Union's Markets in Financial Instruments Directive (MIFID), which aims to harmonise regulation for investment services and increase competition and consumer protection across the EU's 30 member states.

The outcome of this regulatory change has in a number of cases been significant falls in the fees investors pay. Following the Retail Distribution Review in the United Kingdom, for example, the cost of British share funds has on average fallen from 150 to 75 basis points.

Summary of global trends

In summary, the key global managed fund investment trends are continuing asset growth and healthy worldwide flows; a pronounced shift in preference for index over actively-managed funds; the largest fund managers increasing their share of overall managed fund assets; and regulatory moves away from fund commissions. Investors should benefit from resulting greater economies of scale, greater transparency, and lower fees. Australia remains unusual by world standards in our comparatively low share of indexed assets as a proportion of total managed fund investments, and continuing preference for equities over fixed income.

 


 

Leave a Comment:

RELATED ARTICLES

Poacher turned gamekeeper changes his wealth model

Pilar Gomez-Bravo: How to select assets in a world of choices

In defence of asset-linked fees

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

The 2025 Australian Federal election – implications for investors

With an election due by 17 May, we are effectively in campaign mode with the Government announcing numerous spending promises since January and the Coalition often matching them. Here's what the election means for investors.

Latest Updates

World's largest asset manager wants to revolutionise your portfolio

Larry Fink is one of the smartest people in the finance industry. In his latest shareholder letter, the Blackrock CEO outlines his quest to become the biggest player in private assets and upend investor portfolios.

Economy

Australia's economic report card heading into the polls

Our economy grew by a nominal rate of 7% per annum from 2017 to 2024, but it benefited from the largesse of fiscal and monetary policies, both of which are now fading. We need a new, credible economic growth agenda.

Preference votes matter

If the recent polls are anything to go by, we are headed for a hung parliament at the upcoming federal election. So more than ever, Australians need to give serious consideration to their preference votes.

SMSF strategies

Meg on SMSFs: Tips for the last member standing

It’s common for people as they age to seek more help in running their SMSF if their capacity declines. An alternate director may be a great solution for someone just planning for short-term help in the meantime.

Wilson Asset Management on markets and its new income fund

In this interview, Matthew Haupt from Wilson Asset Management discusses his outloook for the ASX, sectors such as REITs that he likes, and his firm's launch of a new income-oriented listed investment company.  

Planning

‘Life expectancy’ – and why I don’t like the expression

Life expectancy isn't just a number - it's a concept that changes with survival rates over time. This article breaks down how age, survival, and societal factors shape our understanding of life expectancy, especially post-Covid. 

The shine is back on gold, and gold miners

Gold mining stocks outperformed in 2024 and are expected to do well in 2025. At this point in the rally, it's worth considering what has driven gold prices higher and why miners could still have some catching up to do.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.