This issue of Product Watch highlights the key themes in product innovation over the past several months, including case studies of equity income funds, emerging market bond funds, and actively managed ETFs.
In the third quarter of 2015, 138 new mutual funds were launched. Many of these were international equity or alternative strategies. The Foreign Large Blend and Long/Short Equity categories saw the most new funds, with eight each. 80 new ETFs were launched in Q3’15. Fundamental index funds and currency hedged international equity strategies continue to be the most active areas of ETF innovation.
Ultra-low interest rates, which have led to higher demand for income-oriented strategies, combined with the rising equity markets over much of the past six years have made equity income funds among the most popular yield-focused investment styles. Equity income has been an active area of product development lately, as 25 new funds have come to market in 2014 or 2015.
An examination of emerging market (“EM”) bond investment strategies reveals several high level themes. General EM bond funds invest in corporate and sovereign debt in both local and hard currencies. Local currency EM bond funds focus on debt denominated in local currencies and often treat currency movements as sources of return. Corporate debt EM funds invest primarily in hard currency-denominated securities issued by companies.
Though still a small part of the overall ETF market, active ETFs have exhibited steady growth and generally consistent inflows. Total AUM has increased from US$14.8 billion at the end of 2013 to US$21.6 billion in Q3’15, and the number of funds has nearly doubled in that time span. Fixed income strategies dominate active ETFs, although other asset classes have seen more product development lately. Of 72 non-index ETFs brought to market in 2014 and 2015, only 24 have been fixed income funds.