January 2020, BOSTON—This issue of The Cerulli Edge—U.S. Monthly Product Trends Edition analyzes mutual fund and exchange-traded fund (ETF) product trends as of January 2020. This issue also includes special coverage on the Year in Review.
Highlights from this research:
- Mutual funds capped off a successful 2019 by growing assets for four straight months to close the year at $16.4 trillion. As of the end of 2019, ETF assets total just more than $4.4 trillion, after increasing 3.2% in December 2019. While much of this can be attributed to a strong year for capital markets, investor demand was high as they poured a collective $326.0 billion in net new flows into the ETF vehicle. Since year-end 2018, ETF assets climbed 31%, while mutual fund assets increased 21%.
- With $16.3 trillion in assets, the mutual fund remains the industry’s dominant investment vehicle, although that status continues to erode as the vehicle suffers net negative flows and asset managers prioritize development of other vehicles (e.g., ETF, separate account). Moving forward, Cerulli expects investors will increasingly seek out equity strategies in the ETF vehicle due to the availability of low-cost beta and the vehicle’s tax efficiency, while also looking to leverage the personalization benefit of the model-delivered separate account as it becomes more available.
- At the heart of product development interest in offering active strategies in an ETF wrapper is the push to offer products in a wrapper-agnostic manner (67% of asset managers report placing a high priority on building out new vehicles) with the understanding that a specific client’s needs may be better met by one vehicle versus another as the mutual fund and ETF wrappers each have unique advantages for retail investors (e.g., the tax efficiency of an ETF vs. the NAV certainty of a mutual fund). If the non-transparent ETF structures can prove themselves via the quality of offerings available, ability to trade at tight spreads, and weather market volatility, Cerulli believes that they will be able to generate advisor demand.