After recently completing an annual review of its product portfolio, S&P Capital IQ, a division of McGraw Hill Financial is said to be looking into “strategic alternatives” for its fund research business.
Decision to Exit Fund Research
In an effort to maximize the value of the firm, S&P Capital IQ is reported to be exploring a “full range of alternatives” for its fund research business, formerly known as funds management research (FMR). This could include selling the unit.
Founded in 1990, FMR is an independent research service that provides qualitative assessments of fund manager’s investment process and operational consistency. FMR has evaluated over 20,000 retail and institutional funds, including long-only equity, fixed-income, and specialist funds, as well as alternative investment vehicles like fund-of-funds, hedge funds, absolute return and Ucits funds.
Despite the decision to potentially sell off FMR, S&P Capital IQ management has said that they remain committed to its existing equity and fixed-income research businesses, as well as its data, analytics and desktop solutions businesses.
Potential Rationale for the Move
While company management did not explain why they are looking to exit the fund research business, one possible rationale is they expect that investors will continue to move away from actively managed funds to index-based funds.
Certainly, the data supports this view. Over the trailing five-year period, actively managed equity mutual funds tracked by Morningstar experienced more than $443 billion in total net outflows, while index-based mutual funds saw total net inflows of more than $245 billion.
The performance of index based funds has also outpaced that of actively managed funds in the past few years. For example, equity index funds have outperformed active funds year-to-date as well as in the trailing one-, three-, and five-year periods.
The real question is if this trend continues, who would be willing to purchase the FMR unit? Morningstar? Thomson Reuters? We will have to wait and see.