Money Markets Drive Asset Manager Flows

As it has consistently done throughout 2015, Vanguard Group was the industry leader in gathering fresh assets in November with $12 billion. Four different Vanguard index mutual funds added more than $1 billion each, including Vanguard Total International Stock Market Index and Vanguard Total International Bond Market Index Fund. VGTSX and VTIBX have well-below-average net expense ratios of 0.22% and 0.23%, respectively, which to S&P Capital IQ, adds to the appeal of these funds.

Led by significant inflows into its money market products, Wells Fargo Funds Management added $7.4 billion during the month. Wells Fargo Advantage Treasury Plus Money Market was among the products that saw inflows. However, the asset manager's traditional equity and fixed income mutual funds experienced outflows. One example is Wells Fargo Advantage Small Cap Value. While SMVAX has a net expense ratio that is in-line with peers, the fund is on pace to underperform its Lipper peer group for the sixth consecutive year.

Another firm that benefited from asset growth in its money market operations was Legg Mason, which gathered overall $1.4 billion in November. In particular, Legg Mason's Western Asset Institutional US Treasury Reserves added approximately $880 million in assets last month. Outside of money markets, Western Asset Total Return Unconstrained Fund was notable, gathering $186 million.

As noted by Matt Blumenfeld from SNL Financial in late October LM had positive institutional trends at affiliates Western Asset Management and Brandywine Global Investment Management during the third quarter. SNL Financial, like S&P Capital IQ, is part of McGraw-Hill Financial.

Moreover, S&P Capital IQ highlights that Federated Investors had five money market portfolios with more than $150 million of outflows last month led by the $2 billion that flowed out of Federated Treasury Obligations Fund (TOIXX). The firm had $3.4 billion in net outflows during November.

In late October, SNL Financial's Matt MacFarland noted that Federated's President and CEO had been a vocal critic of SEC money market reforms that would require institutional prime money market funds to have a floating net asset value.

Yet at Federated there were bright spots as Federated High Yield Trust (FHYTX) and Federated International Leaders (FGFAX) each gathered net assets in November. According to S&P Capital IQ, both funds were in the top quartile of their Lipper peer groups over the last three years.

S&P Capital IQ believes that while investors should not follow the crowd buying and selling what others do, they should be aware of where the money is going. If a lot of money moves into or out their portfolios it can impact management's ability to invest. In our view, investors can usually find a couple of strong mutual fund candidates at the various large asset managers, but they should make selections based on performance, risk and cost factors.

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