Advisors can’t count on organic growth anymore, a reality reflected in Cerulli Associates’ 2018 roundup of mutual fund and ETF flows. Overall, mutual funds lost $156.8 billion in flows, while ETFs added $319.1 billion.

Active funds were the true losers, with $300 billion in net outflows, while index products added $462.2 billion, according to Cerulli. Active mutual funds had $327.3 billion pulled, $144 billion of that in December alone, the report states.

Fixed Income was a big winner as people moved to safety. In fact, Cerulli noted that “more than half of the top-10 Morningstar categories by mutual fund and ETF net flows are fixed income categories.”

However, Cerulli found several areas of growth: “Based on high-level flow figures, one could draw the conclusion that opportunity to gather net flows lay within index ETFs and mutual funds in 2018, but peeling back the onion reveals more significant pockets of organic growth opportunity, including within mutual funds,” the report stated.

These “opportunities” included:

1) Large blend and foreign large blend funds favored index mutual funds and ETFs, having net inflows of $221.8 billion. Also, active ETFs had $542.2 billion in flows.

2) Ultrashort bond funds favored active mutual funds and ETFs, but also index ETFs, bringing in $87.3 billion.

3) Muni national intermediate saw a net inflow of $16.6 billion, mainly to actively managed mutual funds.

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.”

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