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Cerulli survey cites factors fueling ETF growth

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Holdings of U.S. sponsors rate advisor adoption and use of ETFs and ETF strategists are the top two factors fueling the growth of U.S. exchange-traded funds, according to a new report.

Cerulli Associates discloses this finding in the January 2014 issue of “The Cerulli Edge-U.S. Monthly Product Trends.” The report explores vehicle use, including advisor adoption of exchange-traded funds (ETFs). January’s Monthly Spotlight reviews the best-selling mutual funds, ETFs, and Morningstar categories of 2013.

“As the space matures and the breadth of products expands, investors are more apt to take advantage of the unique features of the vehicle structure (e.g., low cost, transparency and intraday trading) in lieu of their mutual fund counterpart,” the report states. “For example, institutions have increased their adoption of ETFs as a tool for target allocation management and tactical opportunities. However, the foundation of future ETF growth will be the expanded use and adoption by the retail advisor community — largely due to an evolution in advisors’ knowledge of the vehicle.”

Among the report’s additional funds:

  • In 2013, total mutual fund assets grew by nearly 20 percent, largely due to substantial asset growth in passively managed products;
  • Across the board, equity products dominated the mutual fund landscape in 2013, capturing flows of greater than $232 billion year-to-date.
  • Total ETF assets expanded by 1.9 percent in December, ending the year with nearly $1.7 billion. ETF equity strategies also grew substantially in 2013, averaging net flows of $17.9 billion per month.
  • Managers wrestle with meaningful advantages and disadvantages tied to different MLP fund structures more than other investment strategies. Assets in excess of $8 billion are spread across different vehicles, including CEFs (37 percent), mutual funds (27 percent), ETFs (19 percent), and ETNs (17 percent), with some structured as C corporations and others as registered investment companies (RICs);
  • A barbell trend emerged in 2013. On one hand, hands-off passive management among indexed products fueled a fee race to the bottom. On the other, investors paid a premium to glean more specialized exposures, including short-duration and unconstrained fixed income.