Close Close

Portfolio > ETFs

Cerulli: Assets in ETFs, Mutual Funds on Track to Tumble for 2nd Straight Month

Your article was successfully shared with the contacts you provided.

After plunging in February, mutual fund and exchange-traded fund assets are set to tumble even further in March as a result of the stock market crash that started last month amid the coronavirus crisis, according to Cerulli Associates.

More than $775 billion in assets was “wiped out” of mutual fund strategies in February, representing a one-month decline of almost 5%, the research firm said Wednesday.

Despite those massive losses, active ($7.4 billion) and passive ($7.8 billion) mutual fund strategies added net flows last month, according to the firm’s latest The Cerulli Edge—U.S. Monthly Product Trends report.

Taxable-bond mutual funds continue to be a destination for investors, with $55.2 billion in net flows through February — the most of any asset class, according to Cerulli.

The top 10 mutual fund managers closed February at just less than $10 trillion, after posting an all-time high of $10.5 trillion at the end of January, according to the report.

ETF assets plunged in February, declining almost 7% to $4.1 trillion, Cerulli said. The sharp drop was tied to the fact that most ETF assets (76%) are in equity strategies, it noted, but pointed out that net flows into the vehicle remained positive at $11.5 billion.

Of the four segments of active and passive mutual funds and ETFs, only active ETFs had growth in assets last month, it said. The segment had only $108 billion in assets, but that was up 3.1% from January, thanks largely to an “injection of $4.3 billion in net flows” in February, it said, adding: “The other three segments suffered significant declines in 2020, with active mutual funds down 4.4%, passive mutual funds down 5.9%, and index ETFs down 7.2%.”

The taxable bond category, meanwhile, has significantly expanded its proportion of the U.S. ETF industry over the last year as advisors continued to increase their use of such ETFs, the firm said.

Moving into early March, equity market losses accelerated, ultimately tumbling more than 20% from all-time highs, ending the 10-year bull market, it noted.

Fears over the economic impact of the COVID-19 outbreak led to significant losses in equity markets during February, with the S&P 500 Index down 8.2% and the MSCI World ex USA Index down 8.9%, Cerulli said.

That downward trend “will likely intensify during March as the World Health Organization declared a global pandemic and major cities around the world take extreme measures to contain the virus,” Cerulli projected.

Meanwhile, the elimination of non-transaction-fee platforms has leveled the playing field and provides ETF issuers more options for promoting their products, it said. “One consequence of the shift from NTF platforms will be the greater use of indirect revenue sharing, such as conference sponsorship and access to advisors for promotional purposes, as opposed to the previously more explicit inclusion in an ETF program,” the company said in announcing the report’s highlights.

Issuers entering the active ETF market ought to consider revenue sharing an integral part of their distribution strategies to ensure their products are approved and promoted appropriately, Cerulli suggested.

Another highlight from its latest research: Use of asset allocation models is growing as more advisors are being prompted by their home offices to increase consistency of performance, spend more time on holistic wealth management and focus more on client acquisition.

Larger BDs and the wirehouses, meanwhile, are looking to bring on asset manager or third-party strategist model providers to help transition more advisors into fee-based business, Cerulli said.

Morningstar recently released its own report on mutual fund and ETF flows in February — when the United States was just beginning to take coronavirus action and the market woke up to it. In February, U.S. equity funds lost $17.5 billion, while actively managed equity funds saw $20 billion in redemptions, that firm said. Further, a record $27.8 billion flowed out of the SPDR S&P 500 ETF. Much of the equity outflows went into taxable-bond funds, which had $23.3 billion in inflows for the month, according to Morningstar.