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Fixed income ETFs, alternative investments and mutual fund to ETF conversions to dominate ETF industry in the US – Cerulli

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Cerulli Associates, writing in the latest issue of The Cerulli Edge, analyses mutual fund and ETF flows as of December 2022, with a special focus on anticipated product development opportunity in 2023.

Highlights from this research reveal that mutual fund assets declined USD4.5 trillion (21.6 per cent) in 2022, shedding flows of USD958 billion, or 4.6 per cent of year-end 2021 total net assets.

While all mutual fund asset classes suffered net outflows during each month in 4Q 2022, Cerulli writes that alternative funds still attracted net inflows of USD19.0 billion for all of 2022.  ETF assets declined only USD718 billion over the same period but gathered positive flows of USD589 billion, or 8.2 per cent of year-end 2021 total net assets.

Inflows have occurred despite volatile markets, which underscores the resilience of underlying demand trends, Cerulli says. Taxable bond and municipal bond ETFs played a more important role in 2022, increasing their combined proportion from 17.6 per cent to 19.6 per cent of the US ETF industry. 

Long-running industry trends are expected to continue to offer tremendous product development opportunity in 2023, Cerulli says, expecting ETFs to continue gathering outsized flows, but via more traditional exposures (e.g., fixed income) versus the riskiest equity funds.

Despite challenges, the focus on private wealth channels for alternative allocations via intermittent liquidity product will remain, the firm says, presenting an important product development opportunity. Advisers will continue to increase uptake of asset allocation models, which in turn will continue to shift toward the ETF structure, and also to separately managed accounts (SMAs).

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