After “bleeding” more than $11 billion in net flows in June, mutual funds added a net of $1.1 billion in July, according to the July Cerulli Associates survey. These net flows, along with strong equity performance, “helped propel” assets to more than $15.1 trillion in July. ETF net flows were $30.6 billion, largely due to U.S. equity, taxable bond, and sector ETFs.
According to the research, 75% of asset managers said ETFs still were a major focus of their firms and in high demand. That said, building out new vehicle offerings was a high priority for 66% of asset managers surveyed. Thirty-four percent stated they had a high priority in building out new asset class capabilities. The top three asset classes for plans were alternatives (15.9%), multi-asset class (15.5%) and international and global equity (15.5%). “However, firms are developing product across all asset classes, including U.S. equity and taxable bond,” the report stated.
Since July, 144 new mutual funds, with $28.3 billion in assets, and 127 new ETFs, with $5.7 billion in assets, have entered the market. And while ETFs typically are passive vehicles, Cerulli found that 43 active ETFs were added to the market.
Cerulli found that asset managers have several ways of building out asset class capabilities, including hiring or training a team, acquiring or merging with another firm manager, or hiring subadvisors, which is most often done to get alternative, emerging market equity and international/global fixed income asset class expertise.
Said the report, “Hiring subadvisors is an interesting avenue, especially because being best of breed is more important than ever. While this can provide access to top-notch investment capabilities, it comes at the expense of splitting the management fee.” It also means a thorough due diligence process.
Those managers who did build their own propriety capabilities included the robo-advisor Wealthfront, which launched its first mutual fund. The risk-parity strategy fund targets volatility of 12% annually and uses derivatives, mainly total return swaps, the report stated. Through July, the fund was the fifth-highest flow gatherer of new funds with $778.6 million.
Cerulli also noted that overall alternative mutual funds have not performed; in fact, they have been in the red in terms of flows since the beginning of the second quarter and are down 2.5% in assets since Jan. 1. Market-neutral funds and managed futures funds were the exception. In fact, market-neutral funds had flows of $1.8 billion during the first seven months of 2018.
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