COVID-19 Asset Management Weekly
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COVID-19 Asset Management Weekly
Disclosures © Flowspring. All rights reserved. Use of this content requires expert knowledge. It is to be used by specialist institutions only. Flowspring is not responsible for missing or incorrect data. This report is for educational purposes only and should not be used as the basis for investment decisions. Neither Flowspring nor its content providers are responsible for losses arising from any use of this information. The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Charts and graphs provided herein are for illustrative purposes only. The information in this presentation has been developed internally and/or obtained from sources believed to be reliable; however, neither Flowspring nor the speaker guarantees the accuracy, adequacy or completeness of such information. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. The information in this presentation may contain projections or other forward‐looking statements regarding future events, targets, forecasts or expectations regarding the strategies described herein, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved, and may be significantly different from that shown here. The information in this presentation, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Neither Flowspring nor the speaker assumes any duty to, nor undertakes to update forward looking statements. No representation or warranty, express or implied, is made or given by or on behalf of Flowspring, the speaker or any other person as to the accuracy and completeness or fairness of the information contained in this presentation, and no responsibility or liability is accepted for any such information. By accepting this presentation in its entirety, the recipient acknowledges its understanding and acceptance of the foregoing statement.
Commentary
While the testing capacity of the United States This action, along with a general increase in the
remains an issue (number of tests reported actually certainty around the trajectory of the virus
fell this past week), confirmed positive cases have outbreak, has calmed nerves and markets.
been growing at a slower rate (66% down from Measures of investor fear have receded, albeit to
135% the week prior). still elevated levels. Between the downward
trajectory of the economy and the upward
In addition, the nation shifts its eyes “beyond the trajectory of capital markets, we may experience
peak” to what may occur in the months to come as asset prices that are highly divorced from
the economy opens up. A second wave of the virus underlying fundamentals for quite awhile.
is possible, but the CDC recently increased it’s
estimate of the R0 for SARS-CoV-2 to 5.7 – a Asset managers are experiencing some
massive difference from the prior estimates of 1-3. acceleration in long-running trends like the pursuit
This is good news because it suggests more of low-cost investment products. While other
people have already been infected and carrying trends, namely the emphasis on ESG investing,
the virus asymptomatically which means herd have faltered as investors put their social concerns
immunity should be greater and a second wave in the back seat.
should be slower and smaller.
In normal times, investors spend an average of 1
Measured by seasonally-adjusted initial hour per month thinking about their investment
unemployment claims, the United States has lost portfolio. Those numbers spike dramatically in
17 million jobs in the last 3 weeks due to the crisis times as they reconsider everything from
coronavirus shut down. This represents more than asset allocation to security selection. Asset
10% of the entire civilian labor force. The speed of managers should consider that an enormous
this reduction is unprecedented in modern times, amount of assets are now “up-for-grabs” as
and the natural question in the financial zeitgeist is investors are trying to align their portfolios with
the shape (V, W, L etc.) of the recovery. their new expectations. Asset managers that can
align their product, marketing and distribution
Adding to the confusion is the latest actions of the teams to capture these assets (and hold on to their
Federal Reserve who announced a $2.3 trillion existing investors) will grow rapidly and have much
monetary stimulus plan aimed at protecting asset better competitive positioning in the ensuing
prices and preserving liquidity for high yield recovery.
borrowers who may otherwise have fallen short of
commitments.Summary of the week of March 23rd
US Global Growth rates of new cases have slowed
significantly in the US and globally, as have
New Cases 230,261 650,957
deaths. We have spent several days below the
New Recovered 16,948 179,413 peak of daily new cases (34,000 on 4/9).
New Deaths 13,107 45,736
Most models have a peak in the late April
early May time frame with a reasonably rapid
(weeks) period where active cases trail off as
active cases are resolved through death or
Daily Growth Rate of Active Cases recovery at a faster pace than new cases
70% arrive.
60% It’s difficult to know whether the decline is
reflects a decline in true cases since testing
50% capacity has plateaued or even slightly
declined in the past week. Without extensive
40% testing we will not know how far this virus has
progressed or how soon it is appropriate to
30%
re-open the economy.
20%
10%
0%
3/1/2020
3/3/2020
3/5/2020
3/7/2020
3/9/2020
4/2/2020
4/4/2020
4/6/2020
4/8/2020
3/27/2020
3/11/2020
3/13/2020
3/15/2020
3/17/2020
3/19/2020
3/21/2020
3/23/2020
3/25/2020
3/29/2020
3/31/2020
4/10/2020
4/12/2020
Sources: http://worldometers.info/coronavirus/coronavirus-casesCOVID-19 crisis to date
US Case Count November 17: First COVID-19 case originated in a 55-year old man in
China’s Hubei province
1000000 _________________________________________________________________
December 31: China confirms they are treating dozens of cases of a new
100000 virus
_________________________________________________________________
10000 January 11: China reports first death from SARS-COV-2, a 61-year-old
man
1000 January 20: First confirmed cases outside mainland China appear in
Japan, South Korea, and Thailand
100 January 21: First case confirmed in United States
January 23: Wuhan, China cut off by Chinese authorities
10 January 30: WHO declares global health emergency
_________________________________________________________________
1 February 2: First death reported outside of China
1/22/2020 2/22/2020 3/22/2020 February 5: The Diamond Princess cruise ship is quarantined in Japan
February 14: First death in Europe
Number of Tests per Day and Percent Positive for SARS-CoV-2 February 29: First death in United States
_________________________________________________________________
35% 180,000 March 3: Federal Reserve cuts interest rates by 50 basis points
160,000 March 13: President Trump declares a national emergency
30%
March 16: Federal Reserve cuts interest rates to 0%
140,000
25%
March 18: President Trump signs coronavirus relief package into law
120,000 March 25: Congress passes $2 trillion fiscal stimulus bill
20% 100,000 March 26: US reports a record 3.3 million new unemployment claims
March 31: US deaths surpass China
80,000
15% _________________________________________________________________
60,000 April 3: CDC Urges Americans to wear masks when outside their homes
10%
40,000 April 6: New York cases and deaths appear to be slowing
5% April 6: Prime Minister Boris Johnson moved into intensive care
20,000
April 9: Federal Reserve announces $2.3 trillion lending plan to bolster
0% - economy
4/1/2020
3/4/2020
3/6/2020
3/8/2020
3/10/2020
3/12/2020
3/14/2020
3/16/2020
3/18/2020
3/20/2020
3/22/2020
3/24/2020
3/26/2020
3/28/2020
3/30/2020
4/3/2020
4/5/2020
4/7/2020
4/9/2020
4/11/2020
4/13/2020
April 12: Boris Johnson leaves hospital
New Tests % Pos
Sources: New York Times, CNN, http://worldometers.info/coronavirus/coronavirus-casesAsset flows by country 2020 YTD
Japan $21.5bil
Canada $9.7bil
Australia $9.1bil
Cayman Islands $4.0bil
South Africa $3.3bil
India $2.7bil
Mexico $2.3bil
Switzerland $1.9bil
Jersey $1.2bil
Finland -$0.4bil
Belgium -$0.6bil
Austria -$1.8bil
Liechtenstein -$2.1bil
Netherlands -$2.7bil
Germany -$3.2bil
Sweden -$3.9bil
Spain -$5.5bil
Italy -$6.7bil
Thailand -$12.7bil
United Kingdom -$13.6bil
Brazil -$17.6bil
France -$37.0bil
Ireland -$40.7bil
Luxembourg -$113.9bil
United States -$264.3bil
Source: Flowspring DataMost extreme investor preferences among top 25 categories since first
US case confirmed
Japan Large-Cap Blend Equity 5.3% -5.3% High Yield Bond
Intermediate Core Bond 2.9% -3.1% USD Money Market - Short Term
Global Large-Cap Blend Equity 1.6% -1.9% Mid-Cap Growth
Short-Term Bond 1.6% -1.8% Large Growth
Foreign Large Blend 1.4% -1.4% Allocation--50% to 70% Equity
Small Blend 1.4% -1.4% EUR Money Market
GBP Money Market - Short Term 1.0% -1.3% Ultrashort Bond
Foreign Large Growth 0.8% -1.1% Mid-Cap Blend
EUR Moderate Allocation -
0.6% -1.0% US Large-Cap Blend Equity
Global
Other Bond 0.5% -0.8% Large Value
These numbers represent the expected organic growth rate of each category attributable to investors’ aggregate
preference for that category.
With an overarching theme of flight to safety, we are finding investors are also expressing geographic, asset class, and
duration preferences while reallocating their assets across various fund categories.
Source: Flowspring EstimatesInvestor preference for ESG rebounds from unusually low levels 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% These numbers represent the expected organic growth rate of funds attributable to their investors’ preferences for ESG mandates. It seems that investors, while still preferring ESG, place much less emphasis on it when capital markets are declining.
Investor preference for low fees diminishes to normal levels 0% -1% -2% -3% -4% -5% -6% -7% -8% -9% -10% These numbers represent the expected organic growth rate of funds attributable to their investors’ preferences for low expense ratios. Contrary to what many may think, investors are not seeking the expertise of high-cost active managers, but rather accelerating their preference for low-cost passive funds.
Flowspring is forecasting the lowest organic growth rates in our history We now expect the industry as a whole to shrink more than 6% organically over the next 12-months, with more than 40% of asset managers shrinking by more than 10% on an asset-weighted basis. 10% 8% 6% 4% 2% 0% 3/6/2014 3/6/2015 3/6/2016 3/6/2017 3/6/2018 3/6/2019 3/6/2020 -2% -4% -6% -8% Asset weighted average organic growth forecast for all global investment products for the next 12 month period using Flowspring’s proprietary flow forecasting factor model.
Concentration of assets in the asset management industry spikes 600 500 400 300 200 100 0 As investors pursue low cost passive products, the large asset managers continue to get larger. This is a continuation of a trend that’s been in place since the global financial crisis, but had plateaued in 2019. The largest 1% of asset managers now manages 450x the amount of assets that the smallest 50% of asset managers manages.
Largest flows among major fund families since first US Case
Flow (Since 2020-02-01) From To
19,315,019,913 iShares Vanguard Vanguard is the big winner of competitive flows thus far
13,022,330,389 Invesco Vanguard
10,924,217,454 State Street iShares in 2020, winning huge amounts of capital from iShares,
10,144,535,323 Dimensional Vanguard
9,937,648,733 T. Rowe Price Vanguard State Street, Invesco, and JPMorgan.
8,954,989,682 State Street Vanguard
8,898,366,936 Invesco iShares
8,880,134,997 American Funds Fidelity
8,686,651,754 iShares Charles Schwab
However, iShares isn’t asleep – they’ve done well
7,400,126,340 JPMorgan Vanguard against Invesco, State Street, T. Rowe Price, and
6,974,946,735 T. Rowe Price iShares
6,838,605,996 Natixis Vanguard
Xtrackers over this time period. We expect asset flows
6,540,553,549 Fidelity iShares to be even more impactful as the volatility in capital
6,414,388,672 Fidelity Vanguard
5,260,449,375 John Hancock Fidelity markets dies down and investors contemplate their
4,446,946,943
4,353,794,996
Invesco
TIAA
JPMorgan
Vanguard
asset class allocation and fund selections in the wake of
4,091,554,367 American Century Vanguard this crisis.
4,023,262,226 Bradesco Itaú
3,901,862,961 BlackRock Vanguard
3,765,367,064 Legg Mason Vanguard
3,626,980,112 T. Rowe Price TIAA
3,592,878,401 PIMCO Vanguard
3,458,086,229 Invesco American Funds
3,303,808,324 Jackson National Fidelity
3,268,388,481 PIMCO Fidelity
3,090,808,303 JPMorgan American Funds
3,084,259,521 T. Rowe Price State Street
3,083,615,717 SEI Vanguard
3,082,045,935 Principal Vanguard
2,893,471,689 JPMorgan TIAA
2,794,328,306 Franklin Templeton American Funds
2,751,788,028 Fidelity Invesco
2,743,766,902 Invesco MFS
2,696,882,186 American Funds Vanguard
2,669,315,736 Itaú Caixa
2,490,177,379 American Funds State Street
2,450,887,851 Dimensional iShares
2,427,061,698 Franklin Templeton Vanguard
2,404,881,336 GMO Fidelity
2,339,576,263 Harbor Vanguard
2,331,164,289 American Funds iShares
2,243,765,722 Natixis PIMCO
2,207,586,113 T. Rowe Price Invesco
2,167,817,981 Matthews Vanguard
2,150,706,801 Natixis American Funds
2,137,077,512
2,094,724,256
Invesco
Invesco
BlackRock
Charles Schwab
Source: Flowspring Estimates
2,079,020,399 Natixis iShares
2,056,668,872 BNY Mellon VanguardFund family asset changes 2020 YTD Fund Family Asset Change Asset Growth Organic Growth Capital Appreciation Natixis (77,157,531,894) -26.9% -8.9% -17.9% Dimensional (128,257,545,367) -25.9% -1.9% -24.0% Jackson National (52,435,603,986) -22.6% -1.9% -20.7% T. Rowe Price (191,197,483,290) -21.8% -2.3% -19.5% Invesco (158,677,719,689) -21.6% -3.5% -18.1% State Street (189,864,862,736) -21.3% -1.2% -20.0% Principal (41,481,569,452) -21.2% -1.2% -20.0% Charles Schwab (58,165,022,978) -20.8% 1.4% -22.2% AllianceBernstein (41,820,236,887) -20.8% -3.5% -17.2% iShares (453,605,188,183) -19.9% -0.2% -19.7% Itaú (60,615,155,635) -19.3% -2.5% -16.8% MFS (69,708,445,141) -19.3% -0.2% -19.1% Goldman Sachs (49,445,828,598) -19.1% 6.5% -25.6% American Funds (371,429,805,746) -18.6% -0.8% -17.8% Amundi (91,771,085,203) -18.3% -7.5% -10.9% TIAA (41,486,506,527) -18.2% 0.1% -18.3% AXA (45,499,522,625) -17.4% -2.9% -14.5% Nomura (45,026,687,048) -17.0% 2.5% -19.5% UBS (69,870,718,720) -16.7% -2.4% -14.3% DWS (43,984,119,450) -16.5% -2.0% -14.5% JPMorgan (128,546,172,361) -15.5% -1.9% -13.5% BB (49,803,330,298) -15.3% 3.3% -18.7% BlackRock (133,675,729,842) -14.4% -2.0% -12.4% Fidelity (156,674,737,216) -6.4% -1.6% -4.8% Vanguard (304,254,816,721) -4.9% -0.2% -4.7% Source: Flowspring Data
0.0%
-4.0%
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
10.0000
-2.0000
0.0000
2.0000
4.0000
6.0000
8.0000
12/30/2018
1/20/2019
2/10/2019
3/3/2019
3/24/2019
4/14/2019
5/5/2019
5/26/2019
6/16/2019
7/7/2019
7/28/2019
8/18/2019
Source: St. Louis Federal Reserve
9/8/2019
9/29/2019
10/20/2019
St. Louis Fed Financial Stress Index
11/10/2019
12/1/2019
12/22/2019
1/12/2020
2/9/2020
3/1/2020
3/22/2020
Annualized weekly investor preference for high volatility funds vs low volatility funds
0
10
15
20
25
30
35
40
45
50
5
0
20
30
40
50
60
70
90
10
80
2006-12-13
2007-05-24
2007-11-02
2008-04-16
2008-09-25
2009-03-05
2009-08-17
2010-01-27
2010-07-08
2010-12-17
Investor fear has moderated, but not fully receded
2011-05-31
2011-11-10
2012-04-20
2012-10-01
2013-03-14
2013-08-23
2014-02-04
2014-07-17
VIX Volatility index
2014-12-26
2015-06-05
2015-11-17
2016-04-28
2016-10-07
2017-03-21
BAML Option Adjusted High Yield Spread
2017-08-31
2018-02-09
2018-07-23
2019-01-02
2019-06-14
2019-11-25Weekly unemployment claims have skyrocketed to record levels
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
-Guns, healthcare/pharma, food, and adult entertainment soar
SARS-CoV-2 transmission and deadliness
Source: New York TimesCountry trajectories
Source: Financial TimesGlossary COVID-19 (Coronavirus Disease 2019) is the infections disease caused by the virus SARS-CoV-2 (Severe Acute Respiratory Syndrome Coronavirus 2). Originating in Wuhan, China, the spread of SARS-CoV-2 has led to a pandemic which has affected nations on 6 of the 7 continents. R0 is the basic reproduction number of a virus. It represents the number of people an infected person can expect to pass the infection to. CFR is the case fatality rate. It represents the expectation for the percentage of infected cases that will end in death.
Helpful links regarding coronavirus information
Best Dashboards for Monitoring Global Cases
https://coronavirus.1point3acres.com/
https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6
https://www.worldometers.info/coronavirus/coronavirus-cases/
World Health Organization (WHO) page on COVID-19
https://www.who.int/emergencies/diseases/novel-coronavirus-2019
US CDC COVID-19 page
https://www.cdc.gov/coronavirus/2019-nCoV/index.html
Epidemic Calculator – Enter your Assumptions, see how the epidemic unfolds
https://gabgoh.github.io/COVID/index.html
General Information
https://en.wikipedia.org/wiki/Coronavirus_disease_2019
https://en.wikipedia.org/wiki/Severe_acute_respiratory_syndrome_coronavirus_2
https://www.soa.org/globalassets/assets/files/resources/research-report/2020/2020-covid-19-research-brief.pdfYou can also read
