A new report from Cerulli Associates painted a divergent picture of mutual funds and ETFs. While the number of mutual funds is on track to experience its biggest decline in four years, the number of ETFs is poised for just the opposite.
The Cerulli report shows that a net 107 mutual funds disappeared this year through the second quarter as the number of closed or merged funds exceeded the number of new ones brought to market. That’s far more than the net number of mutual funds that vanished in all of 2016, 2017 and 2018, which ranged from 74 to 97.
In contrast, the number of ETFs rose to its highest level since at least 2014. By the end of the second quarter, there were 7,732 mutual funds, the lowest number since at least 2014, and 2,122 ETFs.
Actively managed funds accounted for almost all the net closures of mutual funds. More than 100 mutual funds opened during the first two quarters of the year and almost all were passive index funds.
Cerulli attributes the “rationalization” of mutual funds to the commoditization of the product and to distributors trimming their product platforms. Its survey of asset manager product executives revealed that 33% rate product rationalization a high priority and 58% consider it a moderate priority.
Among the top factors that asset managers consider before closing a fund: assets under management — they want to see “a clear path to getting to the $100 million to $200 million range” — performance and demand from key distribution partners, according to Cerulli.
Fund Asset Flows: Active vs. Passive
Asset flows into actively managed mutual funds were also a net negative. Year-to-date through September they were negative $65 billion, while flows into passive mutual funds rose $148 billion.
ETF flows were a different story. Actively managed ETFs saw inflows of $16.8 billion year to date through the third quarter, while passive ETFs had inflows more than 10 times that large: $184 billion.