The MainStay Marketfield Fund (MFADX) was the early and primary beneficiary of the strong push by advisers into “liquid alts.”
One dollar of every two that flowed into Marketfield during 2013, its best year for asset gathering, came from wirehouses, according to an analysis of data by the Money Management Institute, Dover Financial Research and Morningstar Inc.
All that has changed. In October, investors punished Marketfield with its largest monthly withdrawals ever, according to Morningstar, creating a reversal of fortune for the top alternative mutual fund on the market.
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Many investors — including financial advisers — purchased the fund after the year of its strongest performance and are now selling it during its worst.
“It's the worst of investor tendencies coming together,” said Dan Thibeault, president of money manager GL Capital Partners.
Marketfield was the top-selling alternative fund at wirehouses in 2013, winning more than $7 billion from the four big broker-dealers, a quarter of all the money that those firms put into liquid alts that year, according to a study this year by MMI and Dover.
“The rise of blockbuster funds reflects trends throughout the mutual fund industry as wirehouses streamline their recommended lists and their model portfolios,” according to the report. “This practice has led to a migration of products to the best-of-breed within a category, and one result is the emergence of a number of bestsellers that dominate their asset classes.”
Wirehouses are particularly important because they can drive a large amount of assets into a relatively small number of funds that are approved for use on the platform, promoted widely and recommended by the home office.
Of the $152 billion that flowed into all mutual funds last year, wirehouses accounted for $63 billion. Of that amount, 43%, or about $27 billion, went into liquid alternative funds, according to MMI and Dover.
Marketfield enjoyed 31 months of inflows between September 2011 and March 2014. At its peak in February, the fund had $21.5 billion in assets.
But this year, with the fund on track to post its worst results ever and be beaten by most of its competitors amid largely favorable equity markets, investors have pulled $6 billion from the fund in the last 7 months. That's 28% of the assets held by the fund before outflows began.
The fund delivered -10.9% year to date, as of Thursday, compared with a category that's averaged 2.25%. Its assets are down to roughly $14 billion.
Despite the popularity and the growing number of alternatives funds, large broker-dealers have been selective in the funds they've recommended and brought on to their platforms, leaving a bottleneck of products that haven't yet gained access, according to several top managers.
In 2013, that meant a small set of funds captured the assets going into alternatives at wirehouses.
The top five liquid alts funds at wirehouses last year accounted for 75% of flows in the category, Dover and MMI found. The products included a long/short credit fund and three nontraditional bond funds from
BlackRock Inc., J.P. Morgan Asset Management and
Goldman Sachs Asset Management.
The report also said performance, reputation and “the distribution strengths of certain asset managers” contributed to the dominance of a small set of funds.
Marketfield was one of those blockbuster funds.
Started in 2007, the fund swelled from $2 billion two years ago when it was absorbed by New York Life Investment Management's MainStay Investments.
Mainstay has made significant investments in selling its funds through advisers.
For instance, the long/short equity manager aggressively courted placement on no-transaction-fee platforms like those at Pershing, Commonwealth Financial Network and the
Charles Schwab Corp., according to Morningstar data.
Placement on those platforms, which often attract a large proportion of the flows to funds, generally requires an extra payment to the platform provider.
And in addition to paying the standard annual “revenue sharing” fee of $16 per $10,000 for assets it wins from Morgan Stanley brokerage accounts, Mainstay paid an additional $750,000 in 2013 to be a “Global Partner” with the wirehouse.
That status confers the ability to receive “supplemental sales information and additional opportunities to sponsor firm events and promote their funds to our financial advisers and clients,” according to
a disclosure by Morgan Stanley.
Morgan Stanley is the largest wirehouse by adviser headcount.
“Clearly, MainStay really plugged this fund into its salesforce,” said Josh Charney, alternative investments analyst at Morningstar,
in an interview published by
InvestmentNews in June.
The fund also became a darling of research groups that serve advisers, including Morningstar, which gives the fund a “bronze” rating, which it reserves for funds on which the analyst has a “high level of conviction.”
The fund suffered as its “major macroeconomic bets have reversed course,” Mr. Charney wrote in a report in June. “Although the fund is lagging early this year, its process should bode well in the long run.”
Allison Scott, a spokeswoman for New York Life, did not respond to a request for comment.
But in an interview with Bloomberg News on Wednesday, Marketfield manager Michael C. Aronstein said the firm has been able to manage outflows because of the liquidity of the fund's holdings, meaning they are easily sold.
“I don't love it, from a business-owner standpoint,” said Mr. Aronstein, a former senior investment strategist at Merrill Lynch.
