--- APRIL 21, 2006 ---

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Tiburon is pleased to announce the release of its twenty-first research report titled A Comprehensive Overview of the Market-Linked Products Industry, Including Indexed Seperate Accounts, Index Mutual Funds, & Exchange Traded Funds. This new report provides readers with an understanding of the market-linked products industry, which includes indexed separate accounts, index mutual funds, & exchange traded funds, with a specific focus on the latter two packaged products. This release includes some key highlights and future predictions from the report

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Context Setting

Tiburon Strategic Advisors, a market research & strategy consulting firm serving the brokerage and investment management industry, released a new research report to provide financial services executives with a cutting edge understanding of Markert-Linked Products. These specifically include index mutual funds, exchange traded funds, and the often overlooked giant indexed separate accounts.

Please click the image above to view the table of contents for Tiburon's new research report A Comprehensive Overview of the Market-Linked Products Industry, Including Indexed Seperate Accounts, Index Mutual Funds, & Exchange Traded Funds

This is Tiburon's first effort at developing a strategic understanding of this fast growing financial services product sector. The report begins with an account of the evolution of the market-linked products business, which has emerged from the continuing trend towards investment products polarization. It continues with a product by product analysis along the lines of market growth & current status, investment mechanics, leading manufacturers, and leading markets. The report concludes with a strategic discussion of market-linked products markets & distribution opportunities, followed by predictions for the future.

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Key Highlights

Context Setting: A Comprehensive Overview of the Market-Linked Products Industry, Including Indexed Seperate Accounts, Index Mutual Funds, & Exchange Traded Funds

Evolution of the Market-Linked Products Business

  • Over 100 companies offer market-linked products, the majority of which offer index mutual funds
  • The number of index mutual funds and exchange traded funds have grown dramatically to include nearly 600 funds; there are nearly 400 index mutual funds and over 200 exchange traded funds
  • Assets in market-linked products are nearing $4 trillion; indexed separate accounts dominate the market with over $3 trillion; assets in index mutual funds are over $500 billion and assets in exchange traded funds are $280 billion
  • Flows to market-linked products are $300 billion and quickly growing
  • There are six key drivers of the market-linked products market, including the focus on Modern Portfolio Theory & asset allocation, difficulty in beating returns, lower expense ratios, less turnover & more tax efficiency, the volatile stock market, and the stock analysts & mutual funds scandals
  • Five utilization strategies for market-linked products include index portfolio strategies, core & explore strategies, completion strategies, holding pattern strategies, and sector rotation strategies
  • There are three disadvantages of market-linked products, including the lack of certain products, admitting defeat, and ignorance of corporate governance
  • Barclays and State Street each have over $1 trillion in assets in market-linked products, making up over half the market

Indexed Separate Accounts

  • Assets in indexed separate accounts are over $3 trillion, with steady growth, and flows of $200 billion
  • Barclays Global Investors and State Street Global Advisors lead the indexed separate accounts business, each with over $1 trillion in assets
  • The defined benefit plans and independent advisors markets account for over half of indexed separate accounts market assets

Index Mutual Funds

  • Over 70 companies offer index mutual funds, but the majority offer less than five funds
  • Assets in index mutual funds are over $500 billion and are experiencing steady growth
  • Dimensional Fund Advisors, Pro Funds, Rydex, and Vanguard each offer 40 index mutual funds, and when combined, account for half the market
  • Vanguard has over one-third of the index mutual funds market with nearly $200 billion in assets

Exchange Traded Funds

  • There are over 200 exchange traded funds and nearly $300 billion in assets; they are the fastest growing market-linked investment product, but still account for less than 5% of the assets in traditional mutual funds
  • The investment mechanics of exchange traded funds include authorized participants assembling portfolios of futures, options, or stocks, which are placed in trusts; in exchange for securities, authorized participants are given exchange traded fund creation units
  • Six participant types are involved in the exchange traded funds market, including fund sponsors, trustees, authorized participants, exchanges, index licensors, and options exchanges
  • The exchange traded fund market is concentrated, with five major and four minor players
  • By offering over 100 exchange traded funds, Barclays Global Investors dominates over half of the market in terms of the number of products offered, but State Street and Powershares are taking some share
  • Barclays and State Street have over half of the assets in the exchange traded funds market; Barclays captures three-quarters of flows
  • The independent advisor and fee-accounts & TAMPs markets account for the greatest share of assets and flows in exchange traded funds

Markets & Distribution Channels

  • Defined contribution plans, defined benefit plans, and endowments & foundations define the institutional channels; overall these channels account for over $2 trillion of market-linked product assets
  • Exchange traded funds offer 401(k) plans reduced plan costs & reduced fiduciary liability but the market has been slow to penetrate because of transaction costs
  • Other markets & distribution channels for market-linked products include fee-accounts & TAMP programs, life insurance & annuities, separate account managers, mutual funds, hedge funds, and non-US markets

Market Predictions for the Market-Linked Products Business

  • Assets in market-linked products should surpass $8 trillion in assets by the end of the decade and flows will surpass $500 billion
  • Assets in indexed separate accounts will surpass $6 trillion by the end of 2010; the rise of leveraged, inverse, custom, enhanced, and personalized indexed separate accounts will help contribute to this growth
  • Index mutual funds assets should surpass $1 trillion by 2010, with the help of increasing number of new funds; index mutual fund leader Vanguard will continue to dominate in the future
  • The number of companies offering exchange traded funds will surpass 20 by 2010, as new exchange traded fund firms may include both new and existing market-linked product companies
  • Exchange traded funds will become the mutual funds of the 21st Century as assets in exchange traded funds to surpass $1 trillion by the end of the decade; this growth will drive assets in exchange traded funds to nearly overcome separately managed accounts and hedge funds
  • Custom exchange traded funds will experience continued growth and assets should surpass $3 billion by 2010; enhanced exchange traded funds will also continue to grow, with assets expected to surpass $12 billion, and new companies to enter such as Dimensional Fund Advisors and Firsthand Capital
  • Four markets will be further penetrated by exchange traded funds, including exchange traded funds gaining broader acceptance into 401(k) plans, exchange traded funds growing in annuity products, exchange traded funds growing inside fee-accounts & TAMP programs, and utilization by independent advisors increasing
  • Barclays Global Investors will remain the dominant exchange traded fund provider in terms of the number of products, assets, and flows
  • Smaller exchange traded fund firms will likely sell out to gain larger distribution opportunities, demonstrated by Powershares and its forthcoming acquisition by Amvescap

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Tiburon Strategic Advisors

Tiburon Strategic Advisors, based in Tiburon, CA, was formed in 1998 to offer market research & strategy consulting services to all types of financial institutions and investment managers:

  • The firm has served almost 300 corporate clients and completed over 800 projects since its founding, and today, its knowledge base includes mutual fund distribution, separately managed account programs, alternative investments, wealth management, insurance products, banking services, the fee-only financial advisor market, the CPA firm market, the family office market, and various international markets.
  • Tiburon holds a series of CEO Summits semi-annually for its executive-level clients. Attendance is by invitation only and attendance at the Summit is limited to 75 senior industry executives. Visit the CEO Summits section of Tiburon's web site for details on current and past CEO Summits, including attendee lists, meeting agendas, and highlights. Please contact Tiburon’s Managing Principal Chip Roame at CRoame@TiburonAdvisors.Com or (415) 789-2541 if you are a Tiburon client and have an interest in attending a future Tiburon CEO Summit.
  • Tiburon offers thirteen online business benchmarking tools that are available to all types of financial advisors in an effort to help them benchmark their business practices and build more successful businesses. The sites include www.BrokerBestPractice.Com for wirehouse & regional brokers, www.FABestPractices.Com for fee-only financial advisors, www.IndependentRepBestPractices.Com for independent reps, and www.PrivateBankerBestPractices.Com for private bankers. Almost 5,000 advisors have used these tools. By completing one of the online surveys, financial advisors can access a FREE copy of the relevant comprehensive Tiburon research report, which summarizes and analyzes the collective results.
  • Tiburon has published twenty-three ~100-300+ page research reports, which offer detailed analyses of growing business segments; each is available for $5,000; these reports can be ordered by contacting Brian Cotter at BCotter@TiburonAdvisors.Com or (415) 789-2546.
  • Tiburon’s weekly research releases, like this one, are emailed for free to interested industry executives, media representatives, conference planners, and individual financial advisors. Over 38,000 industry executives now receive these releases. Feel free to sign up to receive future research releases at Tiburon’s web site (www.TiburonAdvisors.Com) if this release was passed to you by a colleague and you would like to receive them directly in the future.
  • Tiburon expanded its workforce in 2005-2006. New research managers will develop proprietary research content for Tiburon research reports and client projects and new marketing managers will enhance the firm's web site, weekly research releases program, and the firm's relationships with media representatives, conference planners, and its clients & executive program members.
  • Tiburon has built three executive programs (CEOs-in-Residence, Financial Advisor Roundtable, and Consulting Fellows) in an effort to bring the experiences of additional senior level industry executives to Tiburon clients. Feel free to contact any of the members of Tiburon’s executive programs directly or ask that they be included in any ongoing Tiburon project.

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