As of September 30, 2017, Bank of America (BAC) managed $2.7 trillion in asset management products. The bank’s managed assets have risen 7% YoY (year-over-year) in 3Q17 due to new flow and broad markets’ (SPY) (SPX-INDEX) rising valuation. In 2018, the asset management arms of banks offering diversified asset classes could see further infusion of long-term flow. However, holdings’ valuation may not rise as steeply due to rate hikes and existing holdings’ high valuation.
Asset managers (XLF) have had a great run in 2017, helped by equity markets and improved macroeconomic fundamentals. The speed at which the Fed reverses its easing and reduces its balance sheet could affect asset prices in the upcoming quarters. Any major impact on liquidity could trigger worldwide selling.
Bank of America’s (BAC) global wealth division saw 10% growth in its net income to $769.0 million in 3Q17, helped by higher revenue and lower expenses. In 3Q17, the division added $21 billion in long-term flow, with a preference for equity offerings. The global wealth division managed pre-tax margins of 27.0% in 3Q17, compared with 26.0% in 3Q16. The division’s efficiency ratio improved from 74.0% to 73.0%, reflecting lower spending.
ETFs and index funds
Investors have put more than $4 trillion in ETFs and index funds over the past decade. The market is expected to grow in 2018 with the option of investing in themes or indexes at a lower cost. BlackRock (BLK), State Street (STT), and Vanguard are few of the major players. Bank of America has also forayed into the segment and tried to capture some market share.