Company-specific problems dent AUM of ETF managed portfolios segment

Sep 3rd, 2015 | By | Category: ETF and Index News

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Company-specific problems at three of the largest US-based providers of ETF managed portfolios have seen total assets under management within the segment drop by 7% this quarter and allowed other participants to take market share, according to the Morningstar ETF Managed Portfolios Landscape report.

Large players mask underlying stability in ETF managed portfolios

Assets invested in ETF managed portfolios dropped by 7% this quarter, according to Morningstar.

F-Squared Investments lost $11bn in AUM during the second quarter of 2015, demoting them from the second to sixth largest manager tracked in the report. The Massachusetts-based ETF strategist’s AUM now stand at $3.3bn after losing almost $21bn over the last year following an SEC fine and bankruptcy proceedings, all of which resulted from a performance misrepresentation scandal.

According to the report, two other large ETF managers, Good Harbor and Windhaven Investment Management, also saw noteworthy negative asset growth over the past 12 months, with AUM dropping by $7.9bn and $4.3bn respectively. The resignation of Windhaven’s founder Stephen Cucchiaro and poor performance from the Good Harbor US Tactical Core strategy have played a large part in this.

The individual challenges at these firms have cast a shadow over the underlying growth that the ETF managed portfolio industry is experiencing as investors embrace the cost benefits of ETFs to carry out strategic and tactical asset allocation strategies.

The most significant development this quarter was the addition of the Schwab Managed Portfolios suite to the Morningstar database. These strategies have tripled, to $4 billion, since they were incepted in December 2009, making Charles Schwab the fourth-largest manager in the database.

“The addition of the Schwab Managed Portfolios follows shortly after Vanguard started reporting its collection of ETF model portfolios to our database at the end of last year. While a large portion of ETF managed portfolio assets continue to reside in wirehouse models not captured by our database, the addition of the Schwab Managed Portfolios demonstrates the growing participation and visibility of traditional asset managers in this space,” noted Ling-Wei Hew, ETF Managed Portfolio Research Analyst at Morningstar.

At the end of Q2 2015, the value of the 770 strategies Morningstar tracks totalled $80bn, $22bn below what was published 12 months earlier. Over that period however, F-Squared, Windhaven and Good Harbor combined have seen their assets dwindle by almost $33bn, indicating that the recent weakness has been largely driven by company-specific challenges.

“Despite this major disruption, the remaining firms were largely unaffected as collective assets remained roughly steady. The net result was a further flattening of the landscape. As of the end of June, the 10 largest firms held 54% of assets, compared with 68% at the start of the year. As of the end of June, the 10 largest firms held 54% of assets, compared with 68% at the start of the year,” added Ling-Wei Hew.

By strategy, the largest one-year growth came from the BCM Decathlon Growth Aspect (+$994.5m) followed by the Churchill Premier Wealth Tactical Core (+$856.8m) and the BCM Decathlon Moderate Aspect (+$563.2m).

As of 30 June 2015, the largest ETF managed portfolio provider was Windhaven ($14.8bn), followed by RiverFront Investment Group ($5.4bn), Stadion Money Management ($4.0bn), Charles Schwab ($3.9bn) and Morningstar ($3.5bn).

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