The asset management business has been riding a rising tide of wealth for several years, however headwinds in the form of shifting investment trends and tighter regulation add up to margin compression for the industry.
This week, the U.S. bull market passed the 3,453-day mark, making a record for the longest bull market ever. In the nine years and five months since the current bull run began on March 9, 2009, the S&P 500 index has more than quadrupled in value. And while, the index is still shy of the all-time high reached on January 26, 2018, it is still at a 10-year high.
Moreover, U.S. stocks have been dominating their peers in Europe and Asia to an “unprecedented” degree. The Bloomberg World Index has fallen 1.4% this year, compared with a 7.1% gain for the S&P 500 Index. This divergence in performance by the U.S. is largely attributable to its robust domestic economy, companies that are flush with cash to spend on share buybacks, comparatively tight monetary conditions from the Federal Reserve, and a stronger dollar resulting from President Trump’s trade wars. Given that the U.S. is set to be the only Group of Seven (G-7) nation to see GDP accelerate this year as Trump’s tax cuts kick in, international investors have been particularly drawn to U.S. financial assets.
Domestic asset managers and investment brokerage houses have benefitted tremendously from these tailwinds, since asset managers’ revenues are based on total assets under management (“AUM”) and the rising market has lifted their AUMs higher. You can see this reflected in the iShares US Broker-Dealers ETF (IAI) which has gained 58.9% over the past two years, outperforming the SPY’s 31.7% rise over the same period.
But the stellar conditions for U.S. investment brokerage houses and asset managers could be nearing an end due to a confluence of factors . . .