BAC’s Global Wealth and Investment
Both traditional and alternative asset managers have been managing higher performance fees and higher inflows in recent quarters, driven by the continued buoyancy in equity markets. Bank of America (BAC) was managing ~$2.59 trillion on March 31, 2017, in client balances, which represents a growth of 5% on a YoY (year-over-year) basis.
BAC’s Global Wealth and Investment division has seen higher non-interest income, mainly due to higher fees and partially offset by lower transactional revenue. But in 2H17, asset managers are expected to see relatively subdued performances due to lower growth expectations in equities, based on current levels of valuations.
In 1Q17, the Global Wealth and Investment division was managing net income totaling $770 million, as compared to $741 million in 1Q16, driven by higher interest and non-interest income. The division attracted $29.2 billion in long-term flows in 1Q17, reflecting a shift from brokerage to asset management and client activity.
The division’s management has seen marginal growth in pre-tax margins and similar levels in its efficiency ratio in 1Q17 on a YoY basis.
ETFs and alternatives
BAC’s Asset Management division, however, is facing stiff competition from traditional managers and commercial banks (XLF) like BlackRock (BLK) and Citigroup (C) and alternative asset managers like Blackstone (BX) and KKR (KKR).
Notably, investors have diverted huge flows toward low-cost ETFs and index funds in an effort to save on high asset management fees. Only select active managers have been able to generate alpha or superior returns as compared to the broad index (SPX-INDEX) (SPY).