Strong ETF inflows could illustrate impact of technology on investment management


By Alessandro Ferrari

The everyday processes of companies involved in asset management have been undergoing significant changes at a time when Big Data management has resulted in these companies being able to harness massive amounts of information to make better-informed decisions, according to CNBC.

ETFs enjoy robust inflows

These particular funds have been enjoying significant inflows, as data compiled by Bloomberg and reported on Oct. 21 revealed that since Sept. 1, $47 billion has gone into these financial instruments. On Oct. 17, the deadline for the United States figuring out its debt dilemma, a total of $7 billion was put toward ETFs.

These sharp inflows might be part of a larger trend, as data provided by Washington-based trade organization the Investment Company Institute revealed that during the last five years, assets held by ETFs have risen to $1.5 trillion, which represents a surge of almost 200 percent during the period, according to the news source. In addition, these sharp gains have happened as $284 billion worth of assets flowed out of actively-managed mutual funds during this time frame, according to data provided by market research firm Morningstar Inc.

ETFs could see their assets grow this year, as Nicholas Colas, chief market strategist at ConvergEx Group, estimated in May that $200 billion could flow into these funds in 2013, ETF Trends reported. He noted that while these funds have been increasing their assets, actively-managed equity mutual funds have not experienced a three-month period of net inflows "in years."

Burgeoning technology facilitates automation

Colas made this statement at a time when the traditional tasks performed by staff working in asset management are becoming increasingly automated, according to CNBC. Processes that were previously conducted by human traders are now being done by software programs with increasing frequency. In addition, the tasks that have been done by analysts in the past – assessing the benefits of different securities and then recommending either buying or selling them – are coming within reach of being performed by software programs.

Amid these changes, some see ETFs as becoming the default investment fund that companies use, the media outlet reported. Michael Murphy of hedge fund Rosecliff Capital recently noted a conversation he had that predicted that the market is moving away from active management.

Expert: ETFs becoming ‘new normal’

"I spoke with a high-ranking member of the trading community this weekend," Murphy told the news source. "His large firm sees an end of stock-picking. They see passive, ETF-style investing as the new normal."

Nick Sargen, who serves as chief investment officer for Cincinnati-based Fort Washington Investment Advisors and manages $45 billion there, stated that the sharp inflows that these funds have been experiencing lately reflect the sentiment of global investors, according to Bloomberg.

"There’s no doubt that ETFs have greater influence than before, and the swings in the ETFs are indicative of general market feelings," Sargen told the news source during an interview on Oct. 16. "They become the market."

Investors may need to spend more time scrutinizing these funds to find opportunities for strong returns since corporate earnings are expanding at a declining rate and the S&P 500 has been in a bull market since March 2009, Eric Marshall, who serves as both president and portfolio manager at Hodges Capital Management and therefore manages $1.4 billion, told the media outlet.

This sort of situation – where it is more difficult to find stocks that will appreciate – might provide an opportunity to market participants that can harness data management to pick out the assets with the best possible chances for appreciation.

About the author

Alessandro Ferrari heads up global marketing outreach for RIMES, which was founded in 1996 to serve the complicated data requirements of the buy-side. RIMES is a specialist provider of managed data services and a pioneer of cloud-based technologies used by investment managers, pension funds, custodians and other asset owners in 36 countries around the world.

Alessandro Ferrari:


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