Analysts have cut their profit forecasts for US asset managers after the coronavirus pandemic led to a global sell-off across financial markets in March.
Huge outflows last month from investment funds have prompted brokers, including UBS, Bank of America, Morgan Stanley and Jefferies, to draw red ink across their predictions for US asset manager earnings in 2020 and 2021.
Investors worldwide pulled $277bn from fixed-income funds in March, a record monthly exodus, according to EPFR Global, a data provider. Equity funds suffered outflows of $47.5bn in March, which ranked as the eighth worst month on record.
Bank of America last week cut earnings per share estimates for 16 listed US asset managers by an average of 37 per cent for this year and by 42 per cent for 2021.
“A recessionary scenario is now our base case,” said Michael Carrier, an analyst at BofA in New York.
Brennan Hawken, an analyst at UBS in New York, said the massive job losses in sectors most affected by the crisis would slow future investor inflows into pension schemes. In addition, the US government’s coronavirus relief package has reduced obstacles for individuals to withdraw or borrow from their retirement savings accounts, which will add to fund outflows.
“These actions help people to get through these difficult times, but they will create headwinds for an already embattled industry,” said Mr Hawken.
California-based Franklin Templeton revealed on Wednesday that assets shrank 11.6 per cent last month to $580.2bn at the end of March, a fall that was flattered by the completion of the acquisition of Athena Capital, a $6bn wealth manager.
Daniel Fannon, an analyst at Jefferies, said the update indicated that investors had pulled about $14bn from Franklin in March. Jefferies has forecast that Franklin’s earnings per share will shrink 15.7 per cent this year.
Vanguard, the world’s second-largest asset manager, which has been winning market share from its competitors for the past decade, weathered the storm in March more comfortably than many other asset managers.
Vanguard’s ETF business attracted positive inflows of $7.4bn in March, according to ETFGI, a London-based consultancy. BlackRock, the world’s largest asset manager, registered outflows of $17.6bn last month from its iShares ETF arm. UBS and JPMorgan saw global ETF withdrawals of $8.7bn and $4.1bn in March.
Most analysts believe BlackRock is better positioned than smaller competitors to navigate the current market turmoil because of its diversified business model and worldwide distribution capabilities.
“BlackRock is also better positioned to manage costs given its vast scale and the high level of profitability which its iShares ETF franchise provides,” said Michael Cyprys, an analyst at Morgan Stanley.
Mr Fannon said the increase in volatility across all asset classes would continue to drive investors from equity and bond funds into cash.
“The only safe haven in the short-term has been in money market products,” said Mr Fannon.
Money market funds, which invest largely in short-term government debt and are used by investors as a proxy for cash, absorbed inflows of $716bn in March, a monthly record, EPFR said.