Photo: BofA Merrill Lynch Global Investment Strategy, EPFR Global
Three big asset managers reported earnings yesterday: T. Rowe Price, Waddell & Reed, and Affiliated Managers Group.These are the companies that run the big equity funds we hear about in the context of the “Great Rotation” story. The idea is that investors, who have poured hundreds of billions of dollars into bond funds in recent years, will start pulling money out of those funds and “rotating” it into equity funds run by these big asset managers.
Given the big inflows we’ve seen into equity funds in January, Citi analyst William Katz was paying attention to these earnings reports for any hints as to whether the “Great Rotation” was really materialising or not.
Below is what Katz observed from the three earnings releases and associated conference calls:
TROW does not host a call, while WDR and AMG hosted back to back calls on 1/29, and we note the following around flow dynamics:
1. Volumes are generally improving into January – Here, TROW characterised gross sales as “decent”; WDR is seeing strong(er) growth in January than elevated attrition in December; while AMG pointed to strong request for proposal (RFP) activities. Such disclosure seems consistent with better activity levels in both asset managers and broker-dealers from those reporting earlier in the month, including BLK, SCHW, AMTD, FII and JNS.
2. Volumes are diversified, and not coming from Fixed Income – Indeed, TROW noted a broad based pick up; WDR indicated Asset Strategy, Fixed Income and Equities all trending better; while AMG noted some stepped up retail focus on “return” oriented volumes. We believe such commentary is a bit better than what BLK and FII indicated over the last two weeks, and seemingly consistent with industry trends. Importantly, such unit growth is additive to overall flows rather than substitution for fixed income.
3. But, none of the management teams would stick out their necks and call the “it” moment, in which flows inflect. In fact, there may not be such a moment but rather a continued build. For our part, we believe the next few weeks will be key in particular around: a) absolute level of unit growth; and, b) underlying mix. Further Equities weakness may not be well tolerated for these stocks while acceleration in volumes could help support recent multiple expansion.
So, no major signs of a “Great Rotation” yet, according to the big asset managers.
Katz sums it all up, writing, “To date, we sense the discussion points to a gradual upturn in activity, but perhaps not yet at the break out levels creeping into our coverage universe valuations generally.”