Fixed Income Is Big Gainer as Investors Seek Safety: Cerulli

4) Intermediate-term bonds were the opposite, and saw a negative flow of almost $5 billion from active mutual funds. That said, $20.3 billion in inflows went to indexed mutual funds, while ETFs saw another increase in flows of $7.8 billion.

5) Diverging emerging markets had a total net flow of $23.5 billion, most of that going into indexed ETFs.

Other pockets that saw inflows were short and long government, world bond and small blend funds.

The report also noted the move to fixed income protection, especially due to demographics, shouldn’t be a surprise. As baby boomers age, protecting bull-market gains is “paramount,” especially as the time horizon to retirement gets shorter. The paper noted that “looking at downside risk protection, advisors most commonly report using fixed income products. Taxable fixed income (83%) and municipal fixed income (74%) are currently used by more than 70% of advisors. Most advisors also plan to either increase their use or keep it at the same level for each of these investment strategies.”

Further, regarding institutional moves, the Cerulli report noted that assuming long-term rates move higher, it “expects continued corporate DB de-risking activity, including more assets devoted to liability-driven investing and equity risk mitigation strategies.”

Institutional investors also told Cerulli “that they couldn’t countenance the kind of stomach-churning volatility and asset drawdowns that markets experienced in the fourth quarter.” Therefore, the report notes, many public plans and others began to “reassess passive domestic equity exposure.”

— Related on ThinkAdvisor:

• Client Outlook for Stock Market Shifts to Bearish: Schwab
• Investors Showed Major Risk Aversion in 2018