CITs Thrive as Investors Demand Lower Costs

Collective investment trusts have experienced an average growth rate of more than 8% year over year for the last five years, spurred by demand for lower-cost vehicle options.

For large firms (more than $50 billion in A2 CIT assets under management), most of the growth , 91%, comes from flows from defined contribution plans, while smaller firms (less than $50 billion in A2 CIT assets under management) place DC flows at 73%. (A2 funds are grouped assets contributed by trusts exempt from federal income tax.)

That doesn’t mean that defined benefit plans don’t figure into the mix. Indeed, 54% of asset managers cite that demand from DB plans remains a “very important” factor in developing and distributing CITs.

So says the latest report from Cerulli. The Cerulli Edge—U.S. Monthly Product Trends Edition found that recent asset growth in CITs owes its rise to more demand for those lower-cost options. In a survey conducted with the Coalition of Collective Investment Trusts, 92% of asset managers overall who offer CITs cite demand for lower costs in their own move to develop CITs.

As a result, 92% of managers who were asked about how their pricing for CITs relates to other vehicles responded that their CITs are less expensive than their mutual funds. CITs also allow asset managers to offer custom fee arrangements, with 62% of managers offering such an arrangement due to a pre-existing relationship with the client or due to influence from the consultant.

Mutual funds, for their part, dropped a hefty 6.4% in October, hitting $14.4 trillion. For the third straight month, outflows reigned, with October’s net negative flows totaling $34.7 billion. And the month brought other negatives, too, with the single largest monthly net negative flow figure for 2018.

In addition, ETFs dropped more than 6% in assets during the month, although they actually had positive net inflows of $4.4 billion in October. Total assets sunk below $3.5 trillion, and 47.7% of that was concentrated in the U.S. equity asset class.

— Check out Understanding the Power of CITs on ThinkAdvisor.