The equity market crisis is continuing and so is the crisis in the fund management industry. What ca...
The equity market crisis is continuing and so is the crisis in the fund management industry. What can they sell when their sexiest products are looking a little too battered for public exposure?
The alternatives have been regularly wafted in front of our noses and a few patterns seem to be emerging. The most common and obvious ploy is to take a regular product and slap a guarantee on it. Capital protected products are arguably the last thing you should be buying at the bottom end of the bear market, but it is the fear that we have not yet troughed that keeps these products popular.
This month, we have seen ABN's foreign exchange-trading portfolio, Fsharp's product that is linked to a basket of funds, and HSBC's first guaranteed fund of hedge funds, all of them with capital protection.
Of course, investors would not be so eager to surround themselves with expensive guarantee structures if they had been reasonably diversified when the markets collapsed.
Easy to say in hindsight, of course, and even easier if you forget the fact that there was substantial style drift through the whole of the equity fund sector as managers tried to massage their mandates to allow them to invest the high growth sectors. In defence of the managers, it was the desire of the investor to see high returns regardless of risk that pushed them there.
In any case, while equity markets are simultaneously down, where can go to find diversification? This is where US companies are coming in to sell the value and growth story. Dow Jones has just launched European country versions of its growth and value indices, and Franklin Templeton is offering a dual growth and value offering, having filled the 'growth' hole in its armoury with the purchase of Fiduciary Trust.
And for those who just want to give up on the whole actively managed fund industry, the exchange traded fund (ETF) creators are touting their wares. Indexchange now offers a slew of industry index ETFs, which should provide a cheap route to sectors investing.
ETFs seem to be one of the few asset classes apart from cash that are profiting from the economic malaise. According to Merrill Lynch's first ever global ETF report, there are 246 ETFs with almost $130bn under management, almost all of it in the US. So when product providers are looking for the next sexy thing to sell to us, we should seriously ask ourselves: can 250 million Americans all be wrong?
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