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New Tiburon Research Report - An Initial Overview of the Market-Linked Products Industry, Including Indexed Separate Accounts, Index Mutual Funds, & Exchange Traded Funds
Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, is pleased to announce the release of its newly updated research report on Exchange Traded Funds & Indexing. This research release summarizes some of the report's key findings.
Please click the image above to view the table of contents for Tiburon's Exchange Traded Funds & Indexing Research Report |
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Tiburon’s first draft of this report was published in 2006; that draft organized all Tiburon research on the market-linked products industry into one report.
This is Tiburon's second draft of this report; it focuses on fleshing out the market history chapter and furthering the profiles of some core Tiburon clients, including State Street Global Advisors and Pro Fund Advisors.
Key Findings
This report has a long list of interesting facts to share:
Evolution of the Market-Linked Products
This section outlines the market history, market definition, key driving factors, market growth, market segmentation, and key issues of the market-linked products business. It also outlines the leading exchange traded fund and index companies in this market in terms of the number of products offered, assets, and flows.
Market History
- The market-linked products industry has developed through four phases, including the emergence of indexed separate accounts, the introduction of index mutual funds, indexing growth, and finally the emergence of exchange traded funds
- Wells Fargo introduced indexing in 1971 with an index account for Samsonite Corporation’s pension fund
- State Street offered the first exchange traded fund through the American Stock Exchange, known as Spiders in 1993
Key Driving Factors
- The famous Brinson Beebower study focused many advisors and clients on asset allocation and the belief that the majority of portfolios’ performance is determined by asset allocation
- The vast majority of actively managed m
utual funds have underperformed their Russell index over the past ten years
- Over the long haul, market-linked products’ combination of low fees and low turnover will win out over active management strategies almost three-quarters of the time
Market Growth
- Indexed separate accounts have huge potential when compared to indexed mutual funds and exchange traded funds, having penetrated their category at a far lower level
Market Segmentation
- There are now over 50 companies offering indexed separate accounts
- Custodians also play a role in the investment mechanics of indexed separate accounts, with the bank of New York and State Street leading
- Over half of all indexed separate account assets are based on US equity indexes
- The defined benefit plans and independent advisor markets account for over half of the assets in indexed separate accounts
- Dimensional Fund Advisors, Pro Funds, Rydex, and Vanguard combined offer over half of all index mutual funds
- Exchange traded fund assets have experienced uninterrupted growth since 1993, through both bear & bull markets, reaching over $460 billion in 2007
- Looking at all asset classes, the average expense ratio for exchange traded funds is nearly half that of index mutual funds
Key Issue
s
- Over three-quarters of market-linked products are based on United States equity indexes
- Pro Funds and Rydex investments make up a majority of market-linked leveraged index product assets
- There are six advantages of inverse indexing, including the ability to hedge during market downturns and create risk ceilings
- Nearly half of retail investors have never even heard of inverse indexing
Number of Products
- Barclays Global Investors, Vanguard, Dimensional Fund Advisors, Pro Funds, and Rydex control two-thirds of the market share in terms of the number of market-linked products offered
Assets Under Management
- Barclays Global Investors and State Street Global Advisors dominate assets in market-linked products, each with two to three times the assets of its next two closest competitors, Northern Trust and Vanguard
Flows
- Barclays Global Investors and State Street Global Advisors have two-thirds of the market in terms of flows to market-linked products
Markets & Distribution Channels
This section outlines the markets & distribution channels for market-linked products.
- The defined benefits plans, independent advisors, and fee-accounts & turn-key asset management programs markets account for over half of the market in terms of assets in market-linked products
Financial Advisor Channels
- Over two-thirds of the traditional channels market-linked product assets are from independent financial advisors
- Another exchange traded fund sponsor, State Street Global Advisors, gives nearly two-thirds of its sales efforts to full-service brokers at wirehouse firms
Institutional Channels
- Currently, less than 10% of defined contribution plans allocate assets to custom index mutual funds
- Exchange traded funds have officially invaded the annuities business, as annuities companies are starting to offer the investment product inside annuity offerings
- Several separate account managers utilize exchange traded funds, including CDC IXIS and XTF advisors
International Channels
- The English-speaking region is a non-US leader in m
arket-linked products, especially regarding exchange traded funds
Future Predictions For The Market-Linked Products Business
This chapter of the report provides predictions on the growth of the market-linked products market, as well as indexed separate accounts, index mutual funds, and exchange traded funds individually. Also, product innovations for each of the products are analyzed.
Market-Linked Products
- Active Stock Selection’s share of all trades has decreased significantly over the past 50 years, possibly revealing a trend towards more closet indexers
- The five types of semi-active indexing will grow, as enhanced indexing will significantly lead that growth with $900 billion in assets by 2010
Indexed Separate Accounts
- Custom indexed separate account assets will grow to $4 billion by 2012
- Personalized indexed separate account assets will grow due to consumers’ demands to $33 billion by 2012
Index Mutual Funds
- The number of index mutual funds will continue to increase and will nearly double by 2010 to over 500
- Index mutual funds should play a bigger role in defined contribution plans in the future
Exchange Traded Funds
- Exchange traded funds popularity continues, while the number of offering companies are expected to double by 2012
- The utilization of exchange traded funds will grow inside 401k plans as firms will continue to innovate & find ways to overcome the challenge of trading costs
To better understand the developments in ETFs & Indexing, executives can purchase Tiburon's An Initial Overview of the Market-Linked Products Industry, Including Indexed Separate Accounts, Index Mutual Funds, & Exchange Traded Funds research report where the key findings highlighted above are covered in greater detail. Please contact Sarah Sage at SSage@TiburonAdvisors.Com or 415-789-2540.
More Information
The following links will open specific pages on Tiburon's web site:
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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 over 300 corporate clients and completed over 1,100 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. The next CEO Summit is scheduled for October 14-15, 2008 (San Francisco, CA) at the Ritz Carlton Hotel in San Francisco, CA. 2009 dates are April 9-10, 2009 (New York, NY), and October 7-8, 2009 (San Francisco, CA). Attendance is by invitation only and attendance at each Summit is limited to 125 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 has published forty-five ~300-400+ page research reports, which offer detailed analyses of growing business segments; each is available for $5,000; these reports can be ordered by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540.
- Tiburon offers an annual research report retainer service, whereby dozens of clients receive all Tiburon reports published within a year for $25,000; clients can subscribe to Tiburon's 2008 Research Report Retainer by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540.
- Tiburon also offers a database access program, whereby it shares its 300,000+ person industry executives contacts database with dozens of clients for $25,000 per year (distributed quarterly); clients can subscribe to Tiburon's Database Access Program by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540.
- 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's weekly research releases, like this one, are emailed for free to interested industry executives, media representatives, conference planners, and individual financial advisors. Over 55,000 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 plans to expand its workforce in 2008-2009. Specifically, the firm plans to add two-to-three incremental principals (the most senior role at the firm) and several more research managers in 2008-2009.
- 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 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 project.
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