Cerulli has analysed US mutual fund and ETF product trends as of June 2018, revealing that after two months of growth, June saw a dip in assets for both mutual funds (-0.8 per cent) and ETFs (-0.7 per cent).
Flows were also a challenge for both vehicles in June, with mutual funds reporting a yearly low (-USD17.4 billion) and ETFs reporting just above their yearly low (-USD5.3 billion).
Fixed income mutual funds have attracted USD89.4 billion in net inflows 2Q 2018 YTD, 61 per cent of which has gone to active product, making it a bright spot for active managers, Cerulli says. For ETFs, taxable bonds continue to attract the most inflows within the ETF wrapper of any asset class (USD43.4 billion YTD).
ETF growth has been robust, but sub-advised ETFs remain a small percentage (3 per cent) of total ETF assets. The key to asset growth for many sub-advised active or strategic beta ETFs will be increasing advisor use of the product types, many of which have not accumulated assets. Home-office adoption will also be essential, as many advisors have sought to use, or have been nudged toward using, home-office investment models. Current obstacles include limited supply, relative newness of available products, perceived/actual complexity, and economics of the distribution business.
Cerulli finds that sponsors are rethinking how they engage with unaffiliated sub-advisers. Compliance and reporting requirements are increasing, and some sponsors are beginning to suffer from oversight fatigue, incentivising them to call upon the subadvisers they already have a relationship with to service new mandates.
For a sub-adviser to take advantage of this opportunity and deliver the services sponsors are seeking, one of the most critical components is providing their client with information in a timely manner. In particular, 85 per cent of sponsors note that timeliness of regular reporting and responding to ad hoc requests is ‘very important’ and providing information to the fund board is not far behind at nearly 70 per cent.