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Invesco Ltd (IVZ 0.52%)
Q2Â 2019 Earnings Call
Jul 25, 2019, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Unidentified Speaker
This presentation and comments made in the associated conference call today may include forward-looking statements. Forward-looking statements include information concerning future results of our operations, expenses, earnings, liquidity, cash flow, and capital expenditures, industry or market conditions, AUM, geopolitical events and their potential impact on the company, acquisitions and divestitures, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products, and other aspects of our business or general economic conditions. In addition, words such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts and future conditional verbs such as, will, may, could, should and would as well as any other statement that necessarily depends on future events are intended to identify forward-looking statements. Forward looking statements are not guarantees and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in the most recent Form 10-K and subsequent forms 10-Q filed with the SEC. You may obtain these reports from the SEC's website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statements later turns out to be inaccurate.
Operator
Welcome to Invesco's Second Quarter Results Conference Call. All participants will be in a listen-only mode until the question-and-answer session. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time.
Now I would like to turn the call over to your speakers for today, Martin Flanagan, President and CEO of Invesco; Loren Starr, Chief Financial Officer; and Greg McGreevey, Senior Managing Director of investments.
Mr. Flanagan, you may begin.
Martin Flanagan -- President and Chief Executive Officer
Thank you very much and thank you everybody for joining us. And if you're so inclined, you can follow along the presentation that's on the website. I'll cover the business results today and talk a little bit about the combination. Loren will get into greater detail of the results and impact of the combination and as practice, we'll open-up to Q&A.
So let me get started. I'm on page six if you happen to be following the presentation. And as you saw, we successfully closed the OppenheimerFunds transaction at the end of May with $1.2 trillion in assets under management. We're now the sixth largest retail manager in the United States, 13th largest manager in the world, which puts us in a much [Indecipherable] position to meet client needs. We're now just two months past close and we are more confident ever in our ability to achieve the deal economics and the tremendous potential of the combination. I also want to point out, we're incredibly pleased that the combination has created a much stronger organization with very talented people. Our conversations with clients reaffirm our view that the expanded set of capabilities we now offer combined with best-in-class distribution format, meaning we strengthened our relevance in the market and of late increase organic growth.
I also want to point out there are very clear benefits to shareholders from the transaction. I want confirm once again we will get the $475 million in net synergies, 85% of that will be accomplished by the end of this year. The additional scale, resiliency and stability resulting from the combination will help us achieve a greater than 41% run-rate operating margin. And finally, pro forma year-end EBITDA on 2020 is expected to be exceed $2.6 billion.
Turning to the highlights. Investment performance remained strong during the quarter. 58% of actively managed assets were in the top half of peers over both the three and five year period are getting greater detail in just a minute. Long-term net outflows totaled $3.9 billion, building on the improved trend over the prior quarter, reflecting stronger flows from our ETF and institutional businesses. During the quarter we began to see the power of the combination of recognizing the deals only close for one month. There is a 16% increase in net revenue quarter-over-quarter. The operating margin expanded 300 basis points to 35% or 27% increase in operating income quarter-over-quarter to $363 million. We're now operating from a position of strength, which has enabled us to invest in the growth of our business while also returning $389 million to shareholders through stock buybacks and dividends during the quarter. All of this means we're better positioned to deliver relevant outcomes for our clients, invest in future growth of the organization and provide solid returns for shareholders.
Turning to investment performance on slide eight. As I mentioned, performance remained strong, 58% of our actively managed assets were at 58% of five-year period, 33% of that was top quartile performance. The combination has enhanced the depth and breadth of our investment expertise across the business while further expanding the scale of our investment capabilities. Invesco now ranks Top 10 in assets under management, 10 of the 15 largest asset categories in US retail channel, which is the largest market in the world. Best examples are a second-ranked in bank loans, HY Munis, third rank in emerging markets, fourth rank in global equities. We see three areas where there's a alignment from market demand is strong, long-term track records of our capabilities that being global, international, emerging markets equity, fixed income and alternatives. All three of these asset classes have significant percentage of our assets in the top quartile for all time periods. So in short, we're very well positioned in the market and the capabilities we are seeing strong demand, which will drive organic growth.
I'll now pass over to Loren to go through the results.
Loren Starr -- Chief Financial Officer
Thanks very much, Marty. On slide nine, you'll find an overview of our long-term flows. In aggregate, we experienced net outflows of $3.9 billion in Q2, which is an improvement of $1.5 billion compared to the prior quarter and $4.1 billion compared to prior year. As you can see on the slide, the area is driving this positive change, we're in passive Asia-Pacific, EMEA, ex-UK and institutional. ETF capabilities globally contributed more than $4.5 billion in net flows for the quarter. ETF flows in the Americas were diversified across our smart beta offerings, led by our S&P low volatility suite and bullet shares ETFs.
In EMEA ex-UK, we saw a positive ETF flows across a number of our equity and fixed income ETF capabilities. Notably, our ETF flow growth has propelled us to number two in terms of net new ETF assets in this region year-to-date. In Asia-Pacific, we generated $3 billion of net inflows. We saw a growth in sales surge across many of our fixed income and balanced capabilities with particularly robust growth provided by our China, Invesco Great Wall business. In China alone, we added nearly $2 billion of net flows into several of our active balanced and equity capabilities, reflecting the excellent investment performance and market positioning we have in this region.
Our institutional business continued to show signs of strength, delivering $2.1 billion in positive flows in Q2. Of note, the last time we posted positive net flows in our institutional business was in the first quarter of 2018. Much of this change is due to the improvement we're seeing in redemptions. On the same slide, you can see the areas driving outflows in the quarter, which included active, the Americas, UK and retail. The majority of active outflows were in the asset class of equities, although these were offset to some extent by fixed income net inflows. In the Americas, outflows in our US retail equity products were elevated against the prior quarter due to the partial period inclusion of the legacy Oppenheimer products, which experienced approximately $2.5 billion in post close outflows during the quarter. The Americas were also negatively impacted by outflows across our bank loan capabilities with about $1.2 billion out, as investors redeemed from this asset class on an industrywide basis. Industry dynamics also continue to challenge our retail flows in the UK as risk assets remained broadly out of favor with investors in these markets, fueled by the uncertainty from Brexit.
Looking forward to the last half of 2019 for Invesco, we expect the factors that are currently impacting our flows both positively and negatively to largely persist. With that said, while we certainly are seeing an elevated level of outflows in the legacy Oppenheimer fund products in the short-term. We believe that we'll be able to improve our level of sales growth in the Americas, given the world-class distribution team and platform that we've created through this combination. It's still early days and the opportunity to drive flows through improved sales and marketing efforts have not yet been realized.
So before I leave this slide, I wanted to quickly provide an update on our expectations around AUM breakage as it is related to the combination. Our original deal expectations included an estimate as you'll remember of $10 billion in outflows in the first year after the close. As we look to client breakage, the only item that we've specifically identified at this point related to the announced transaction is the transition of the state of New Mexico 529 plan. This transition will result in a $2 billion outflow in the fourth quarter. So with this known outflow and considering expectations around potential impacts from the announced investment team changes, we believe that our AUM breakage from the transaction will in fact meaningfully less than the original estimate of $10 billion.
Next let's turn to slide 10 which outlines our AUM. Our assets under management increased by $243 billion or 25.5%, which primarily reflects the impact of the OFI [Phonetic] combination and positive market returns, partially offset by total net outflows. As a reminder, the RFI combination added $224 billion to our AUM in May. We saw a quarter-over-quarter growth in AUM across both active and passive and across all channels and client domiciles other than for the UK. The Oppenheimer AUM increased the percentage of the firm's AUM and that is active retail in Americas based while our institutional and passive AUM grew due to long-term net inflows and market appreciation during the quarter. As Marty mentioned, our general net revenue yield excluding performance fees increased 1.4 basis points to 38.5 basis points versus 37.1 basis points in the prior quarter. In addition of OFI AUM for slightly more than one month added approximately 1.3 basis points to our net revenue yield and we also saw one additional day in the quarter which added 0.3 basis points. These factors were modestly offset by change in AUM mix.
Slide 11 provides US GAAP operating results for the quarter. My comments today are going to focused on the variances related to our non-GAAP adjusted measures which will be found on slide 12. Moving to this slide, you'll see that net revenues increased by $145 million or they were 16% up quarter-over-quarter to $1.03 billion. This increase reflects primarily the impact of the Oppenheimer combination and the increased day count in the quarter. Adjusted operating expenses at $668 million increased by $65 million or 11% relative to the first quarter. This increase largely reflects once again the impact of the Oppenheimer combination on expenses for the period.
Next, moving to slide 13, I'd like to comment on the progress that we've made on the integration and synergy capture recorded to-date. As noted in the first quarter, we spent a significant amount of time between the announcement date and closing date defining the leadership and the organizational structure for the combined team. This has allowed us to quickly execute on a number of very important post-close activities required to increase our sales growth for the combined business. These activities include moving to a single brand, strengthening our newly combined sales organization through training and definition of go-forward client coverage and creating a client demand framework and go-to-market strategy for the combined firm.
As I mentioned earlier when I was discussing the Q2 flows, we have not yet to fully realize the benefit of this work and the impact on our sales in the US retail business. In addition to activating the newly integrated US retail sales platform, the pre-close integration work has also enabled us to make meaningful progress on cost synergy recognition. We remain on-track to capture $475 million of net synergies through the first quarter of 2021. As a reminder, this $475 million amount of bottom line cost savings is net of investments we are making, which will allow us to drive future growth and avoid future costs. This combination is allowing us to accelerate investments in areas that strengthen our distribution investment capabilities and processes as well as allowing us to deploy new technologies and automation to significantly increase our operational efficiency while still delivering the $475 million in savings.
In terms of timing, to achieve the net synergies, we originally expected to have 52% of total expense synergies captured at the end of the third quarter of this year. Given the significant amount of progress we've made prior to the deal close to establish, communicate and execute on our end-state organization systems and work placement by location, we were able to achieve this level of synergy captured by the end of the second quarter. With the quicker synergy capture, we remain well on-track to recognize 85% of synergies by the end of 2019.
Next, let's move to slide 14, which looks at our adjusted operating and net income. Operating income increased $79 million to $363 million, largely reflecting the increased operating earnings from the Oppenheimer transaction. Our operating margin improved to 35.2% versus 32% in the prior quarter, reflecting the positive margin benefits from the combination as well as the quicker synergy capture I discussed on the previous slide. Firm's effective tax rate came in at 21.8%, which was consistent with our prior guidance. We continue to expect our tax rate to come in somewhere between 22% and 23% starting in the third quarter. Lastly, our net income improved by nearly 25% to $280 million, reflecting continued strong non-operating gains from our investments and adjusted EPS improved to $0.65 versus $0.56 in the first quarter.
Next, move to slide 15. This presents a snapshot of Invesco's balance sheet and capital management. So as I had mentioned, we continue to execute in a very disciplined way to achieve the target level of deal synergies and the improved financial position that the deal provides. In doing so, we expect to continue to return significant levels of capital to our shareholders. You saw this in the current quarter when we returned nearly $390 million to our shareholders through a combination of dividends and share repurchases. This represented a PAT of about 107% of our operating income for the period. You'll recall that we announced a $1.2 billion share repurchase program in the fourth quarter of 2018 and we successfully executed $600 million against that plan through the end of the quarter as we see a significant opportunity to repurchase our shares given Invesco's stocks depressed valuation and trading discount to peers and given our confidence and the strength of the combined organization. In addition, we executed a further $200 million forward repurchase agreement in July. That will bring us to $800 million stock buybacks. Once this is completed, we expect to have repurchased some 39 million shares since the fourth quarter, which represents more than 8% of our share count outstanding as of the transaction close.
Although there was no preferred payment in the second quarter due to the timing of dividend declaration, we will pay the preferred dividend starting in the third quarter. Note that the third quarter payment will be elevated at $64.4 million as they will reflect the additional 80-day post close period from May. Starting in the fourth quarter, the amount will level out as $59 million per quarter.
Turning to the balance sheet. So you will see that we have a $7 billion increase in assets during the quarter, largely reflecting the indefinite lived intangible and goodwill assets recognized as part of this transaction. Our equity balance increased by $4 billion, reflecting the preferred issuance to MassMutual close and our cash and cash equivalents balance increased by nearly $200 million. With the increased earning power and cash flow of the combined firm, we expect to reach our targeted $1 billion of cash, in excess of regulatory capital requirements by the second half of 2020. We repaid approximately $400 million of debt in the quarter, largely paying down our credit facility and leaving a near zero balance, which obviously has a positive impact on our leverage ratios. We expect to be able to maintain our current level of debt going forward.
As Marty noted earlier, we anticipate that the combined organization will have a pro forma annual EBITDA post synergies of more than $2.6 billion by the end of 2020, which represents a significant increase when compared to the pre-combination at Invesco. With this increased level of EBITDA, our leverage ratio would be approximately 0.8 times gross debt to EBITDA based on the US GAAP classification of the newly issued $4 billion of non-cumulative perpetual preferred as equity. Conversely, if the preferred were instead treated as a 100% debt, the leverage ratio would be at a 2.3 times gross debt to EBITDA. This is a level that we certainly view as manageable and one that will certainly come down over-time as our earnings grow.
So I'll conclude by saying that we're very confident in our ability to capture the $475 million in net cost synergies and deliver the deal economics and other benefits we outlined, which include not only the targeted $1.2 billion in stock buybacks, but also a strong balance sheet with little or no added debt and some $1 billion of excess cash, as we get to the second half of 2020.
And with that, I'll turn it back to Marty to wrap-up.
Martin Flanagan -- President and Chief Executive Officer
Thank you, Loren. Let me make a couple of comments before we get to Q&A. And as we've discussed on previous calls, we continue to be very focused on improving our leadership position in core markets, which of course this combination has while at the same time investing in those parts of the business where we see rapid growth. This approach has helped us to deliver best-in-class set of capabilities, which will drive sustainable broad-based growth as we look to the future. The combination with OppenheimerFunds has meaning if we accelerated the strategy. Obviously, expanding our leadership position in United States while also strengthen our business in areas where we're growing quite rapidly as Loren mentioned, China ETFs, digital platform solutions to name a few. So again, we're just too much paths closed and we have all the confidence that the combination is meeting and exceeding our expectations.
And with that, let me open-up to questions please.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from Ken Worthington with JPMorgan. You may go ahead.
Ken Worthington -- JPMorgan -- Analyst
Hi, good morning and thank you for taking my questions. I think first prior to the deal, I believe Oppenheimer was sort of running neutral to positive net sales. Since the deal was announced, Oppenheimer has seen a pickup in the outflows. I think you said it was $2 billion or maybe $2.5 billion since the deal was closed. I think originally you were modeling 1% to 2% organic growth for Oppenheimer. What are your sort of thinking now for the go-forward there? And then how quickly do you think you get the benefits from a sales perspective? I think you've suggested that the integration of the Oppenheimer and Invesco sales forces was particularly disruptive. We've got three months of Oppenheimer in 3Q rather than 1Q. So how quickly and maybe what is the cadence look like for an improvement in sales as the sales force is now integrated and hopefully more stable to offset some of these dis-synergies?
Martin Flanagan -- President and Chief Executive Officer
Yeah. Let me hit some of the high points and I'll let Loren later. So this is the most talented sales force I have ever seen. And it is literally made-up of half Invesco, half Oppenheimer. That was just the outcome of the exercise that the leadership went through. It is in place, it was in place and closed all of that work was done before. That said, it's a new range of capabilities in the focus area. So I would quite say, through the end of the year until things settle down is when I think everybody have their sea legs. But that said, each and every day is a better day and had reached degree of confidence there. The other thing that we've talked about is just not the US wealth management platform, but Oppenheimer is a number of capabilities that will be well received in the institutional market and also in the retail market outside the United States. So literally, some of the retail capabilities will be available on October and we're already working on get it to market with a number of the institutional teams around the world. So again, the big difference is we're up and running and executing where most transactions I have see this thing starts to happen after close. And from every transaction there I've been involved I can say this is the best that we've ever done. So I think we're in a very good spot.
Loren?
Loren Starr -- Chief Financial Officer
Yeah. And Ken, we had an estimate of 1% to 2% organic growth scheduled to begin in 2020. So at this point, we're still hopeful that we can achieve those types of levels of growth. Again, there is an opportunity to take these capabilities into our institutional channel into our offshore business. There is a lot of activity going on as we speak to actually make that happen. A lot of interest in those channels for these products. We have some headwinds on certain key products in the Oppenheimer sort of capabilities, but there are other really high performing capabilities as well that we think we're going to be able to leverage itself. So I'd say in terms of our distribution efforts that is really being spring-loaded in terms of being able to execute really in a position as we get to the second half of this year. I mean, again, there is probably some headwinds in the near-term, still that we're going to see, as I mentioned, we don't think anything can change, but ultimately we're going to start seeing the benefit of this really world-class organization coming together and being able to execute.
Ken Worthington -- JPMorgan -- Analyst
Thank you. And then on the institutional side of the business, you highlighted a move to inflows. But you also highlighted that the drive to net sales was driven by redemptions slowing. It does look like gross sales have slowed too. You've talked about in the past that the institutional pipeline was sort of hitting record levels. Should we see gross sales improve from here. If so, what asset classes and geographies? In terms of the decline in gross redemptions, is that sustainable or might that have just been a one-off this quarter?
Loren Starr -- Chief Financial Officer
Great question. So I think the reduction in sales was really just the market environment that we've been in, things slowed down in terms of funding. So there is some pause that happens. So the one but not funded pipeline is still as large as it's been in fact it is up 10% versus prior quarter is up 31% versus prior year. So the pipeline of one not funded is robust, very strong growing. So we feel confident those assets are going to come through. It's really just a matter of timing on the solar redemption side. Again it's hard to say what is permanent and what is not. In terms of what we know, in terms of expected outflows, nothing has increased relative to prior levels. So we think that looks reasonably stable. But there is always going to be potential for idiosyncratic outflows that come from certain key clients. So again, what we can manage at the sales probably more than the redemption side and we are feeling very positive about that outlook into the next couple of quarters.
Martin Flanagan -- President and Chief Executive Officer
And let me add. Because you raised a very good points. I have absolute confidence that the operating results are going to be as you would predict, as we've talked about through '19 through '20. That said, two fundamental strength of our organization are seeing headwinds. Brexit is a headwind and for us it is incredibly risk-off in UK in particular. And the trade wars actually do impact our position in Asia-Pac. That said, we're still going to get the results that we're talking about. So if you see any benefit in that, we would expect real strong increase in inflows.
Loren Starr -- Chief Financial Officer
And I didn't answer your last question sorry Ken. So it's about more than 60% of the pipeline is in alternatives, about 23% is in equities and some 10% in fixed income. Just to give you a sense of where it is coming from.
Ken Worthington -- JPMorgan -- Analyst
Great, thank you very much.
Martin Flanagan -- President and Chief Executive Officer
Thanks Ken.
Operator
Thank you. The next question comes from Dan Fannon with Jefferies. You may go ahead.
Daniel Fannon -- Jefferies & Company -- Analyst
Thanks, good morning. I guess my first question is on just the synergies, the $475 million. Obviously you've expressed a lot of confidence and have some good kind of runway to start here. So Loren you mentioned also just kind of reinvestment back into the business. And so just curious, as we think a bit out if there is upside to the $475 million or if you're going to continue to kind of reinvest in growth in other areas as you achieve these synergies if there is additional things that are found?
Loren Starr -- Chief Financial Officer
So Dan, we certainly have seen this transaction is an opportunity to upgrade significantly as we've talked about putting the firm together, becoming stronger firm has been part of the objective. This is not just been about cost saves. It's actually about creating a stronger organization. And so we actually view this as a fundamental part of the transaction, the $475 million should be viewed as a net number, net of investments in terms of what we're going to deliver. We're absolutely confident we're going be able to deliver that. I think the good news is that we've been able and we expect to be able to continue to invest alongside delivering the savings into critical areas that will strengthen our distribution, our investment capabilities and invest in new technologies automation to augment our operational efficiency, really bringing our firm to sort of the state of the art and basically avoiding sort of the need to invest in the future. So really allowing us to accelerate all this activity right now. Today, we've been able to invest, small amount. So let's say roughly $30 million. There is an opportunity I think to be able to invest more as we go through, but in terms of kind of the modeling and your thinking I would bank on the net $475 million is what to expect.
Daniel Fannon -- Jefferies & Company -- Analyst
Okay. And then just a follow-up, Marty on your comment about Brexit. Obviously that's you said risk-off, but also performance in that area has not been good for you guys and some of the your -- I guess your former employee is going through some hard times over there. And then I just want to talk just generally about the franchise you see there, the strategies you have in place, how performance is kind of having through this type of environment and are there anything you guys are looking to do to proactively get in front or institute change or just kind of waiting for the macro to shift?
Martin Flanagan -- President and Chief Executive Officer
Yeah. It's a good point Dan. I would say it's more broad. I mean, as you know, what has been a fundamental strength of the organization where we had nine years of net inflow up until throughout '17. Much of that was on the back of value biased equity capabilities and we're in an extreme period where it's out of favor almost, the most extreme period that we've seen, that's a record. That said the investors are still very, very talented, have great faith in them and they are going to do quite fine. So the business issue that you're talking about is the flows and as I keep pointing out, we're posting these results with these extreme headwinds. But now we're not just waiting for things to change. I would pay attention to the Intelliflo announcement came out in June and it is a digital platform that start with our model portfolio, starting in the fourth quarter of this year, it uses a broad array of our capabilities, both active and passive and we looked at it as a game changer in the UK.
Loren Starr -- Chief Financial Officer
Yeah. I'd also point out because it's moved quickly, there's lot of currency going on here as well, but pre-Brexit our UK as a percentage of AUM was about 12% of total. And as we show it is about 6%. So again in terms of kind of the total exposure to Invesco just by the nature of the currency and some of the market and flow dynamics, it is not as large an exposure to the firm as you might have otherwise seen just a short period of ago.
Daniel Fannon -- Jefferies & Company -- Analyst
Great, thank you.
Operator
Thank you. The next question comes from Craig Siegenthaler with Credit Suisse. You may go ahead.
Craig Siegenthaler -- Credit Suisse AG -- Analyst
Thanks. Good morning Marty and Loren. I just wanted to start with the $10 billion of merger dis-synergies, redemption notices have actually been trending better than you initially guided to. First-off, when do you expect institutions to notify you in terms of pre or post closing and are you really kind of passed that point, so that's a good sign. But then also Oppenheimer has seen very large outflow since you announced the deal. So I'm just wondering do you not include retail or intermediary redemptions in your dis-synergy number?
Loren Starr -- Chief Financial Officer
So in terms of institutional notification, that's not really a factor because I think we really had very limited institutional relationships of any size at Oppenheimer's 529 was the largest for sure. So that's done. We have not seen any sort of notifications large scale institutional or retail-wise that indicate we should expect outflows due to breakage due to this transaction. There are as we mentioned some performance headwind, which we don't think fairly should be attributed to the deal. It's more just kind of the nature of the asset class or the performance in combination. A good example would be around kind of the international growth capability, which I think industrywide was in significant outflow and so we certainly saw some of that hit our capability as well.
So basically I would say in terms of the transaction and the impact [Indecipherable] that's not as we said, it's going to be materially less in terms of the current headwinds around outflows, again some of that may persist into Q3 and Q4, we are hoping to offset some of that through improved sales efforts across not only protecting that current estimates, but also promoting some of the other very strong investment capabilities through channels that had not previously been able to access those products where they weren't on the platform. So hopefully that's helpful in terms of sizing it. I wouldn't say the market has been helpful too. So offsetting some of the outflow markets have offset that. So in terms of the overall AUM levels related to Oppenheimer, we're still exactly where we were kind of in Q1.
Craig Siegenthaler -- Credit Suisse AG -- Analyst
Loren, do you have the Oppenheimer total flow number for 2Q '19 not just post closing, but for the full quarter?
Loren Starr -- Chief Financial Officer
I don't have that number handy. I'm sorry, Craig.
Craig Siegenthaler -- Credit Suisse AG -- Analyst
Okay, thank you.
Operator
Thank you. The next question comes from Glenn Schorr with Evercore. You may go ahead.
Glenn Schorr -- Evercore ISI -- Analyst
Hi. You guys touched on it on your comments on the UK business. But maybe I could ask overall with now becoming number six I think you said and obviously done the deal to be more important in the retail channel, the retail channel distribution efforts are changing to the more portfolio construction approach. Could you talk about what you have functional now and also how much of the market shifted there. In other words, I get that the future is it now or is it impacting flows now. So your positioning and then a statement on the overall retail channel.
Martin Flanagan -- President and Chief Executive Officer
Yeah, it's a good question. So, we fully agree with the notion that clients really around the world are looking much more sort of outcomes, which basically means that we are creating solutions, portfolios of different sizes and make-ups. We are seeing that in the US retail channel too. I would not say it's -- I'd say that is where it's heading, it tends to be right now the largest teams are very focused on it. And as we've talked over the years, where that [Indecipherable] through our solutions capability, which is very strong, very talented, it's been marketed, it's been in market for a couple of years and they do anything from building unique portfolios for organizations to analytics for various teams to help them determine how they might shift their mix. So we do think that's the future. There's no question about it. The other area where we have made a great investment is in all of our analytics around distribution and again it only got stronger with the combination with Oppenheimer. They had some very talented people there also. And again, we think we're clearly one of the top players with those capabilities. I think what it also highlights to just this kind of conversation. You have to have size of scale to compete and the notion that you don't have the depth and breadth of capabilities, we are active as of only for solutions and to have digital support and capabilities. I just think it's going to be very, very difficult for others to compete.
Glenn Schorr -- Evercore ISI -- Analyst
That leads into maybe a quick question on the passive side. Obviously you've had good inflows there. Could you broaden out a little bit of of what's working best in passive land and maybe even touch on arbitrary associated?
Martin Flanagan -- President and Chief Executive Officer
Yeah. So what you are saying, the ETF business in Europe is now kicking-off in a very strong way. We had currently 20% organic growth in the quarter. It's the second largest flow in the marketplace. So sources absolutely integrated product line is the way it's supposed to be. We're executing on all cylinders and back to the United States. Again, we're also starting to see our ETF flows picked up, again very important element of that is the bullet shares. We're not done with that. The build-out of the BulletShares capabilities yet, but the ones that we have put in place are very strong and again play to just a question you were asking about earlier a huge opportunity in the marketplace for financial advisors in particular with the BulletShares capabilities.
Loren Starr -- Chief Financial Officer
Yeah. Glenn just in terms of specifics, I mean some of the largest flows we're seeing in terms of the S&P 500 low volatility ETF, we also saw a significant inflows into a newly launched fund in Europe, which is our MSCI, Saudi Arabia, ETF. Physical gold is another one where we saw interest. BulletShares in the US has been and continues to be a very, very fast growing capability, short duration ETFs as well seem to have picked up a lot of share. So a combination of fixed income commodities and mobile.
Glenn Schorr -- Evercore ISI -- Analyst
Great, thanks. Thanks for all that. I appreciate it.
Operator
Thank you. The next question comes from Michael Carrier with Bank of America Merrill Lynch. You may go ahead.
Michael Carrier -- Bank of America Merrill Lynch -- Analyst
Good morning, thanks for taking the questions.
Martin Flanagan -- President and Chief Executive Officer
Yeah.
Michael Carrier -- Bank of America Merrill Lynch -- Analyst
The first one, just given the flow mix in terms of more passive and then institutional versus active in retail and the impact of that can have on the fee rate outlook versus what happened this quarter with the deal. So how do you think about the incremental margin for the business. If you see the flow trends continue like in that direction versus say over the next one to two years retail are active start to shift back?
Martin Flanagan -- President and Chief Executive Officer
Let me make a comment before Loren does. And I think you're hitting on something that is largely misunderstood. So when you look at our business, I can speak to others. The growth in our ETF business is a positive one, a very positive one. The profitability, the profit margins are in excess of our stated profit margins. So it's actually accretive to the business. And so the overall effect of fee rate if it drifts down, it has nothing to do with fee pressure. It has all to do with the mix in shift, which quite frankly is an areas where we have greater profitability.
Loren Starr -- Chief Financial Officer
And in terms of the way we are thinking about it, the incremental margin that we're seeing as we grow, is in that 50% to 60% range, one that we've historically talked about. So nothing has shifted really in terms of our ability to see margins grows as we grow, certainly delivering that the net incremental number well above the firm's overall margin. As we talked about even though passive continues to be a very fast growing part of our business. The incremental margin on that business is actually extremely attractive and also well in excess of the firm's overall margin. So again, we want to differentiate. In fact that we've been focused mostly on the sort of smart beta factor based ETFs, which have generally higher prices than we've seen on the commoditized market cap weighted ETFs. And again that gives those products really strong margin incremental margin characteristics.
Michael Carrier -- Bank of America Merrill Lynch -- Analyst
Okay, thanks for that. And maybe just a quick follow-up for Loren. Just in terms of Oppenheimer, does that have any impact on the other revenue in the performance fee line, when we think going forward.
Loren Starr -- Chief Financial Officer
No, it really would not. There are very few places where Oppenheimer is subject to performance fees. I would say that the only caveat is to the extent that we use those capabilities institutionally in places in the US or outside the US. You could see some of those products potentially having some performance fees linked to them, but currently on their current asset base, no and other revenues as well. No.
Michael Carrier -- Bank of America Merrill Lynch -- Analyst
Okay, thanks a lot.
Operator
Thank you. The next question comes from Bill Katz with Citi. You may go ahead.
William Katz -- Citigroup Inc. -- Analyst
Okay. Thank you very much for taking the questions this morning. Just seeing one of the slides that you're -- so the EPS accretion is static from the last update, but the market has moved the fair amount. How do you think about market impact to that assumption? I'm just trying to understand sort of sensitivity to the macro.
Loren Starr -- Chief Financial Officer
Yeah. So Bill as I kind of hinted at one of the other questions, we obviously lost some assets through outflow, but we actually gained those that assets back through market. So in terms of general accretion, we're kind of exactly where we were before just happened to be where we are right at that that same level of AUM.
William Katz -- Citigroup Inc. -- Analyst
Okay. Busy morning. I apologize if I missed that. And then when you look out into 2021 when you are on the other side of sort of the normalized savings. Does your incremental margin change or maybe another way to ask the question is, what kind of growth rate would you anticipate on expenses assuming a relatively benign market backdrop?
Loren Starr -- Chief Financial Officer
Yeah, good question. So again I think we would expect to see some 3% inflation on expenses generally as you get out into those outer years. I think again, one of the good news elements of that we are accelerating the fair amount of investment through this transaction. So our need to sort of substantially sort of redo technology and other things that other firms might have to deal with it through the course of the next several years. We're kind of getting a lot of that done through this transaction.
William Katz -- Citigroup Inc. -- Analyst
Okay, thank you very much.
Loren Starr -- Chief Financial Officer
Thank you.
Operator
Thank you. The next question comes from Patrick Davitt with Autonomous Research. You may go ahead.
Patrick Davitt -- Autonomous Research LLP -- Analyst
Good morning . Thank you. My first one is on the, I guess the expected uptick and fee rates from Oppenheimer. I know it's tough to do exactly, but my rough math suggests the full quarter uptick was something in the range of 3 basis points. And I think you guided to 4.5. Am in the right ballpark there and is there a reason to change the expectation for that 4.5 basis point uptick on a full run rate basis?
Loren Starr -- Chief Financial Officer
We still have in the model an assumption of roughly 2 basis points being lost due to sea breakages, you remember Patrick. And so we still don't know if that's going to be fully the case. But at this point, not able to say that it's not the case. And so I would still assume that there is, that $45 million kind of loss going to happen at some point, particularly as we at some point potentially rationalize products and so forth. So the way that I'd be thinking about it we were 39.1 in Q2. We'd expect to see our basis points climb roughly 2 basis points into Q3, maybe a little bit sort of higher into Q4. So that would be our thinking sort of 40, 41.2 to 45 in that range for the last half of this year.
Patrick Davitt -- Autonomous Research LLP -- Analyst
Okay, thank you. And then on China, obviously good to see the traction there and obviously in some higher fee products. Could you walk through in more detail a little bit what's driving that uptick in inflows? And if you see that run rate accelerating at a similar rate going forward? And then finally any nuances to the sharing of those economics given how they are distributed?
Martin Flanagan -- President and Chief Executive Officer
Yeah. China is a fundamental strength of ours. It has been for a long time. But what you are seeing now is the growth is just incredible and it was always an opportunity, but now it's literally happening, it's happening at both levels. The institutional level there we're managing money for the sovereign wealth funds etc. But the joint venture is amazing situation right now, Invesco Great Wall. The flows continue to grow and we expect that to continue. And then probably the thing by most unique is we're the only foreign money -- managing money for and financial that money fund and what's happened post that is then adding on traditional long only equity fixed income capabilities. So what they call the e-commerce platforms are very strong and for us is from nothing to a number two distributor in China right now. So we see nothing but ongoing success in China.
Loren Starr -- Chief Financial Officer
Yeah. I'd say, I mean, about half of our flows are coming from those digital distribution channels. The economics on those channels are somewhat similar to what they are for the banking channel. So there is no sort of free gift here, but ultimately we're very well positioned to continue to drive those types of products through and the overall fee rate in China in particular as well in excess of the firm's overall fee rate. So that dynamic in terms of our ability to distribute our active products into China is one that will have a positive impact, not only on margin and you can see what the margin is on our China Great Wall business, because we provide great detail in our queue and I mean it's in excess of 50%. So you can see that it's going to have a positive incremental margin impact as we grow if we're successful and we expect to be grow in China and our China business.
Patrick Davitt -- Autonomous Research LLP -- Analyst
Thanks.
Operator
Thank you. The next question comes from Kenneth Lee with RBC Capital Markets. You may go ahead.
Kenneth Lee -- RBC Capital Markets -- Analyst
Hi, good morning. Thanks for taking the question. Just a follow-up on the AUM breakage. Wondering what key factors drove the updated thoughts for being meaningful less the $10 billion? Was it just the transition of the state of New Mexico or was there anything else?
Loren Starr -- Chief Financial Officer
So I think we announced some changes around our portfolio teams with respect to Oppenheimer and Invesco as we brought the two firms together. And again, it was relatively minor in terms of kind of the overlap as we had hinted. But now that we've sort of fully got our arms around that, the impacted assets are really not large and so when we think about fee breakage due to those changes, the $10 billion is well in excess of what is reasonable to think about. So it's really just understanding what ultimately we're able to do around those investment teams and ultimately there'll be a follow-up impact on some products in terms of mergers of products and product rationalization. But the overall impact of AUM is not large.
Kenneth Lee -- RBC Capital Markets -- Analyst
Okay, great. And then just one follow-up. In terms of the alternatives AUM, wondering what key factors drove the outflows there. I think you mentioned in the past there were some elevated outflows in the GTR product. Just wondering whether you still saw that in this quarter. And if so, could you give us a sense of what fund flows were in alternatives, excluding the GTR? Thanks.
Loren Starr -- Chief Financial Officer
Yeah. So it actually wasn't GTR. It was mostly the senior bank loan. So that was a massive outflow industrywide where obviously large. It was about $2.3 billion of outflow for our senior loan business across the ETFs and the actively traded accounts. GTR was $1.3 billion out. So there was something there, but it was not the biggest piece and ultimately I think GTR flow picture is not one that we are hugely concerned about. There has been some strong improvement year-to-date on the performance, I mean even though it's underperforming on a three-year basis. It actually performed extremely well in some of the most volatile months, doing exactly what it was supposed to do in terms of protecting downside. So we feel reasonably good about protecting the GTR franchise and not seen it so to continue to be a source of significant outflow.
Kenneth Lee -- RBC Capital Markets -- Analyst
Great, thank you very much.
Loren Starr -- Chief Financial Officer
Got it.
Operator
Thank you. The next question comes from Brennan Hawken with UBS. You may go ahead.
Brennan Hawken -- UBS Securities LLC -- Analyst
Hey, good morning guys. Thanks for taking the question. Loren, I think you had said that 41.2 to 41.5 basis points is the updated expectation for the revenue yield. Does that replace the previous 41.5 and it's just like you guys have a little more granular detail on it now. And so that's why there is an update and why would that rate move up from 3Q, just overall that's a little confusing to me?
Loren Starr -- Chief Financial Officer
So I think what I was looking at was net revenue yield. So excluding performance fees, it's probably more flat when you think about where the timing is. So you can think about somewhere between sort of 41, as I mentioned 41.2, 41.5 just kind of the 41.5 pickup is just the performance fee impact, which is again are normally sort of weird and lame approach to and forecasted performance fees, which is not very accurate.
Brennan Hawken -- UBS Securities LLC -- Analyst
Okay. So the 41.2 to 41.5 is not fee revenue ex-performance fees, but it's all in fee revenue?
Loren Starr -- Chief Financial Officer
The all-in fee revenue. Yeah.
Brennan Hawken -- UBS Securities LLC -- Analyst
Okay, got it. So when we look at it like-for-like versus the previous because I think the 41.5 that you guys gave last time was for run rate fee revenue ex-performance fees. So is --
Loren Starr -- Chief Financial Officer
Right. So again, we've had some outflow. We've said we've had some mixed dynamics that worked against us. So this is kind of where we're landing right now based on today.
Brennan Hawken -- UBS Securities LLC -- Analyst
Okay. I got it. That's helpful and then just definitionally understanding some of the deal related breakage in the $10 billion that you guys updated. Is this just when a client indicates that the reason they are redeeming is due to the deal and therefore it's sort of a high bar to clear in order to get that notification because it certainly seems like from the outside. And if you guys if I'm misunderstanding this, I'd love to hear clarification, but it definitely feels like flows have deteriorated since the deal got announced, it feels like that I recognize 4Q was really tough and volatile and it's been a tough time, but it also feels like especially versus where the run rate was previously on an asset-flow basis it's deteriorated and so isn't some of that probably deal related and the clients just aren't telling you? Maybe you could help me understand that a bit.
Loren Starr -- Chief Financial Officer
I mean this is impossible to really know. But we look at our outflows relative to the industry outflows and we try to explain how much of the outflow is due to the industry. We also obviously look at our performance and we can explain some of the outflow due to performance. We can explain 80% to 90% of the outflows we're seeing in the Oppenheimer deal due to industry flows and due to performance. So we're not having to attribute nor is it fair to attribute it to the deal. Again, if anyone tells us it's still related we'll put it into that $10 billion. But we do think that mostly what is happening is due to industry kind of outflows and the performance on certain key large products.
Brennan Hawken -- UBS Securities LLC -- Analyst
Okay. Thanks for that.
Operator
Thank you. The next question comes from Alex Blostein with Goldman Sachs. You may go ahead.
Brian Bailey -- Goldman Sachs -- Analyst
Good morning. This is actually Brian Bailey filling in for Alex. Marty. I wanted to come back to your comments around the divergence between margins and fee rates and how flows into ETFs are actually supportive of the incremental margin. Can you give us sort of similar color around the margin impact for back to the equity book and the active alternative book because I think what we're trying to do from our seats is marry the idea that if you have outflows from what we would, what we see as higher fee buckets. What impact that would have on the margin.
Loren Starr -- Chief Financial Officer
Yeah, I can answer that Brian. It is actually very similar. I think there is always been this perception that lower fee rate products must mean lower margin, I mean that's been sort of the knee jerk on most people when they were bemoaning the dropping fee rate. But the reality is the incremental margin if you are able to grow off an existing portfolio team, I mean, you're not having to add a lot of resources to be able to do that. So the economics are similarly excellence and higher than the firms overall average. So as long as we can sort of grow assets assets both in active and passive we're going to see the fee rate and the incremental margins in that 50% to 65% range. I mean again it varies a little bit tend to team region to region, but overall it's fair to say that it's very similar.
Brian Bailey -- Goldman Sachs -- Analyst
Got it, OK. And then maybe just one more. We've talked a fair amount about the UK business but if you could come back to that for a second there feels like now all of a sudden there is potential for increased regulatory pressure there potentially around some of maybe the way funds are structured, can you give us a little bit of color on what's been the potential impact on your fund flows for the quarter, particularly in UK. And then if any of that was related to some of the issues that were also associated with funds.
Martin Flanagan -- President and Chief Executive Officer
No. Look I, we don't see that sort of conversation about the regulatory where where it might end up is impacting our flows. I mean it was really has been as we spoke previously its risk-off environment and people in particular hate UK equities just with Brexit overhang and again what we see is the real opportunity for us in the UK. It's a very important market for us. We will continue to be. There have been obviously important headwinds because of Brexit and as we've said we really saw come to light just really last year. It's real in the marketplace and that's where the reactions are, but again I think what we've done, our competitive position with Intelliflo and the impact on flows now it's going to probably kick-in much more Q1 next year, but we'll start to see probably in Q4 beginning of inflows through various models on [Indecipherable]. Again, it just puts us in a very different place competitively than the other organizations we compete with there.
Brian Bailey -- Goldman Sachs -- Analyst
Got it. Thank you very much.
Martin Flanagan -- President and Chief Executive Officer
Yeah.
Operator
Thank you. The next question comes from Brian Bedell with Deutsche Bank. You may go ahead.
Brian Bedell -- Deutsche Bank Securities -- Analyst
Great, thanks very much for taking my question. Maybe, if I could just go back to the Oppenheimer flow situation really from the sales side in terms of just the trajectory of what you're doing there and if whether we can see that potentially reversing the outflows. And if you can talk a little bit about the distribution, actually the sales force. Just the size of that sales force now versus before the deal. How much that's expanded and whether there's been any change in composition either across geography footprint or greater strength in any particular distribution channel and then the status of the work on launching the Oppenheimer products institutionally as well as listing in Europe?
Martin Flanagan -- President and Chief Executive Officer
Let me start. As I mentioned a few minutes ago, we anticipate the retail products be available outside the United States in October. Institutionally, we're just going through, we call market readiness right now with a number of the Oppenheimer teams. So we'll be in market very shortly. Here already there's been some some meetings out in Asia with the teams. So that's all under way. I'll make a comment and Loren speak more specifically of the size. But the US retail distribution force as I said, it's the most talented group of individuals that I've ever been associated with. They're very focused at in-market and focusing on different channels and what we had in the past. Within it, high net worth being one of the areas and again, we just think we're positioned very strongly in that market.
Loren Starr -- Chief Financial Officer
Yeah. I mean I'd say, I mean, it's been a huge effort, obviously the amount of training that had to happen, it has been significant. I mean there have been tens of thousands of hours of busy person and sort of training to get everyone up to speed on the products and the regions and kind of how things work in the combined organization. There has been significant work on the brand and sort of positioning and the digital campaigns with respect to our products and having people understand the combined organization versus the two what it was previously as two separate ones and we are beginning to really get real connection with placements and investment wins, particularly where consultants historically had missed the opportunities of previous firms because of the gaps we had in product capability, combined we have now sort of the full set of capabilities. So again I think it's still as we said early days and so we really think we're going to see the ability to grow our sales number off of maybe what you see as a second quarter level. Just how successful we're going to be is, we'll see it when we see it. But we do think it's material and we do think that there is far more upside off of the levels that we're currently seeing. In terms of the other part that we're very excited about is the European opportunity, those products. I think we're ready to go at the end of September, sometime in September. So that's something that you will actually begin to see some activity in flows coming off of those products, hopefully this year.
Brian Bedell -- Deutsche Bank Securities -- Analyst
And how big is the sales force increase and the wholesale in fact?
Loren Starr -- Chief Financial Officer
Just, I mean it was a modest increase. I think there was some change in composition with more use of hybrid sort of crossing between regional and I'm sorry, internal and external or where the hybrids are coming in, but I mean there wasn't a dramatic increase in the net side, it was really just the the talent and the skill-set of the people that we retained.
Brian Bedell -- Deutsche Bank Securities -- Analyst
All right. Okay. And then maybe just lastly Marty on, just your view on the [Indecipherable] active non-transparent ETF. Maybe first of all, just holistically what you think of the ability for that product? Do you significantly help active flows for the industry and then you're in position at Invesco, whether you're ready to launch those products as early as by year-end or early next year?
Martin Flanagan -- President and Chief Executive Officer
Yeah. Look, I think the excitement around it is ahead of the reality of the impact and I think you're starting to pick that up. I think it's a very interesting vehicle and again we will be willing to participate in our own way in that. But we don't anticipate it being frankly a big change in the industry anytime soon.
Brian Bedell -- Deutsche Bank Securities -- Analyst
Okay, fair enough. Thank you.
Operator
Thank you. The next question comes from Michael Cyprys with Morgan Stanley. You may go ahead.
Michael Cyprys -- Morgan Stanley -- Analyst
Hey, good morning. Thanks for squeezing me again. Just wanted to circle back on some of your commentary around retail solutions. I guess maybe more broadly as you think about retail solutions, model portfolios, Jemstep, Intelliflo, if you could just update us today on how meaningful those are in terms of AUM flows and revenue at Invesco? What the pipeline looks like and can you talk about some of the actions that you're taking over the next six to 12 months for those initiatives to accelerate?
Martin Flanagan -- President and Chief Executive Officer
Yeah. So let me start with Jemstep. So still main channel focused, we're now -- as I've said in the past it's literally an application, but you install it literally is integrated into the clients infrastructure, so it does take longer to do that. So that's starting to happen right now. We're anticipating probably into next year when we'll start to see something more material there. Intelliflo is further ahead, 35% market share in the United Kingdom between and telephone Jemstep. There are opportunities outside of the United States and the UK that we're looking at right now. So again, I would say 2020 you're going to start to see flow impact from the combination of those two.
Loren Starr -- Chief Financial Officer
Yeah. I mean, so most of the revenues are coming from Intelliflo. It's showing up in our service and distribution fee revenue line. I mean, so those numbers are becoming larger as the business is growing $10 million plus kind of levels. It is one that we have not really used this NPS capability out where you could actually see Invesco products find their way in these model portfolios. The total AUM for Intelliflo is about $450 billion in assets right now and it continues to grow just in the UK. So obviously the impact for us being successful with that activity would be material in terms of assets under management and revenues. So there is a reason to be excited about how this is going to go up.
Michael Cyprys -- Morgan Stanley -- Analyst
Okay, great. And just as a quick follow-up on the MassMutual relationship bump. What sort of conversation and dialog are you having with MassMutual regarding the cross marketing and synergies from that relationship. And in your view what would successful look like say three years from now with respect to that relationship in the revenue synergies, how meaningful?
Martin Flanagan -- President and Chief Executive Officer
Yeah. Very strong relationships and the teams are -- both teams are working very diligently and probably half a dozen different initiatives right now. They range from the obvious with their sales force of 8,500 here in the United States and opportunities they are co-product development things in the general account we're having a conversation with and also looking at there is some related things we can do with their insurance capabilities and our money management capabilities. So we're well into it and how big could it be, we'll just have to see, but they're a great partner and they are actually dedicated to success of between the two organizations and frankly very excited about it. You'll hear more specifics in a not too distant future.
Michael Cyprys -- Morgan Stanley -- Analyst
Great. Thanks so much.
Martin Flanagan -- President and Chief Executive Officer
Yeah.
Operator
Thank you. The next question comes from Robert Lee with KBW. You may go ahead.
Robert Lee -- Keefe, Bruyette & Woods, Inc. -- Analyst
Great. Thanks for taking my questions. [Indecipherable]. I just want to talk a little bit about the leveraging of Oppenheimer. I know historically mutual fund track records management haven't really translated into the institutional business or the SMA business. So I mean how do you feel about the extend you're trying to leverage that platform through other channels. I mean is it really trends that transferable to other strategies and other markets or where do you think the do you thinking that the real leverage is a kind of retail outside the US?
Martin Flanagan -- President and Chief Executive Officer
No, not just retail. I think what has our experience been and things that will transfer be successful. It really depends on the long-term track records, but really not just that, but the asset class itself. And as I was saying that from the beginning of this, if you look at the capabilities that came over, they are in-demand capabilities. So they have a got a great global equity capability. Global equity is not that attractive here in the United States. Outside of the United States, it's very attractive at the institutional level. And that is one of the areas we're having conversations. There is emerging markets equity, emerging markets debts to other areas where there's institutional demand. And frankly, there's not enough high quality managers in those areas. And so if you look at the combined firm right now, we're very, very strong in emerging market equity. Obviously we're one of the most important franchises in the industry there. You look at things if you want to get sort of basically have the bank loan capabilities with ours. It is arguably the top in the industry and those are things that are not just in the United States, but outside of the United States, too.
So you really have to look at, we keep talking about the makeup of the asset classes that came over. There are really important asset classes that many institutions are interested in them also and not just the retail channel outside of the States. So again for us, if it's going to happen, it's just when is it going to happen and just from my past experience we're further ahead than we've ever been in the combination. And at this time, we're literally in market trying to make things happen where more often than not, you don't start something like that till six months after closing a combination of size. So I can't tell you what quarter we're going to start to see the flows, but we've done everything possible to be in market making impact right now.
Robert Lee -- Keefe, Bruyette & Woods, Inc. -- Analyst
Great. Thank you.
Martin Flanagan -- President and Chief Executive Officer
Yeah.
Operator
Thank you. And our last question comes from Chris Harris with Wells Fargo. You may go ahead.
Chris Harris -- Wells Fargo Securities -- Analyst
Thanks guys. If we look at retail investor behavior here in the US, as you know the stock market has gone up a lot, but equity flows in the industry are pretty weak, as you know, a lot of flows going into bonds. And your judgment why our investors behaving this way and really more importantly is your commentary about US sales picking up predicated on investors increasing their risk appetite from here?
Martin Flanagan -- President and Chief Executive Officer
Let me hit the last. So, no, it's not predicated on investors changing their appetite. I didn't say that simply because of the depth and breadth of our capabilities. There are very few asset classes that we don't have strong capabilities and so regardless of market, yeah that's a topic. You're asking the very important question of what's happening, why our investors stayed away from US equities probably in particular. Look, it's 10 years after the market bottom, I still think investors have been -- retail investors in particular focused on cap weighted indexes. Quite frankly, I think they have too much exposure to it and retail investors that is and you saw what happened in Q4 last year and I think you just again have to look at the narrowness of the equity market and the difference in the value growth trade and that's really where the money is going right now and that is we've said and I'm sure you have too. We hope retail investors understand what they own. It will change and but when will it change, probably after correction in my investment.
Operator
And that was the last question.
Martin Flanagan -- President and Chief Executive Officer
Okay. Thank you everybody for the questions and I look forward talking to you next quarter. Have a good rest of the day.
Operator
[Operator Closing Remarks]
Duration: 71 minutes
Call participants:
Unidentified Speaker
Martin Flanagan -- President and Chief Executive Officer
Loren Starr -- Chief Financial Officer
Ken Worthington -- JPMorgan -- Analyst
Daniel Fannon -- Jefferies & Company -- Analyst
Craig Siegenthaler -- Credit Suisse AG -- Analyst
Glenn Schorr -- Evercore ISI -- Analyst
Michael Carrier -- Bank of America Merrill Lynch -- Analyst
William Katz -- Citigroup Inc. -- Analyst
Patrick Davitt -- Autonomous Research LLP -- Analyst
Kenneth Lee -- RBC Capital Markets -- Analyst
Brennan Hawken -- UBS Securities LLC -- Analyst
Brian Bailey -- Goldman Sachs -- Analyst
Brian Bedell -- Deutsche Bank Securities -- Analyst
Michael Cyprys -- Morgan Stanley -- Analyst
Robert Lee -- Keefe, Bruyette & Woods, Inc. -- Analyst
Chris Harris -- Wells Fargo Securities -- Analyst
