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Is the Asset Management Industry Consolidating? Fink Weighs In

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Is the Asset Management Industry Consolidating? Fink Weighs In PART 1 OF 5

Is the Asset Management Industry Consolidating? Fink Weighs In

Asset management industry

The $14.3 trillion global asset management industry is facing various challenges as it struggles to provide returns. In 2005, the industry size was $3.2 trillion. In 2013, the net asset hit a record high of $7.2 trillion. The money was flowing to the global asset management industry as investors thought it would provide higher returns.

Fink’s view on the asset management industry

Laurence D. Fink of BlackRock has commented on the performance of various asset managers. He said the hedge fund industry has had a weak performance in recent years. He expects consolidation among various asset managers. In this series, we’ll explore his reasoning for this and take a look at the industry’s performance.

BlackRock (BLK) is the world’s largest asset management firm with $3.6 trillion of assets under management. Fink, the founder of BlackRock, said he made it the world’s largest money manager by a number of acquisitions. He also believes the active fund management strategy has recently been losing its shine as fund managers struggle to beat the benchmark index.

Many fund managers are having trouble getting the alpha from their investments. Alpha represents the excess return of a portfolio compared to a return of a benchmark index. It’s a very important factor for investors since it gauges the performance of a fund manager.

Is the Asset Management Industry Consolidating? Fink Weighs In

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Mutual funds that have provided handsome returns in 2015

In 2015, the U.S. Global Investors World Precious Minerals Fund (UNWPX) provided the highest return of 68.9%. It’s considered a top performer. The fund is managed by U.S. Global Investors and has a net asset of $158.4 million. As of May 31, 2016, on a year-to-date basis, the fund returned 82.1%.

Below are the top five funds and their year-to-date returns as of May 31, 2016:

  • U.S. Global Investors Gold & Precious Metals (USERX): 60.3%
  • Gabelli Gold Fund – AAA (GOLDX): 58.3%
  • American Century Quantitative Equity Funds Global Gold Fund Investor Class (BGEIX): 64.7%
  • Fidelity Select Gold (FSAGX): 55.0%

It’s worth noting that among all the top performers, most of the funds are invested in gold (GLD) and precious minerals. The benchmark index, the S&P 500 (SPY), returned -0.77% in 2015 since its earnings didn’t support the equity market.

The turmoil in China’s economy (FXI) (YINN) also made the equity market nervous in August 2015. Equity mutual funds, which follow an active management strategy, weren’t able to provide impressive results in 2015.

In the next part of this series, we’ll take a look at the drawbacks of the active fund management strategy.

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