Mutual funds and exchange-traded funds hemorrhaged assets in March, as investors withdrew some $320 billion from these products, according to the April Cerulli Edge U.S. monthly product trends report.
Some asset classes were exempt from this trend as the coronavirus tornado swept across the country. Passively managed equity strategies added $35.8 billion during March, $20.7 billion coming through mutual funds and $15.1 billion through ETFs.
Investors directed net flows within passive equities mainly to U.S. equities. Cerulli said demand for passive U.S. equity likely arose from investors reallocating into high-quality, low-cost equity index-tracing products that offered more attractive prices that resulted from the severe equity market declines.
The analysis showed that asset managers endured double-digit asset declines during March, with mutual funds falling 13.6% and ETFs declining 12.4%.
Mutual funds took a historically hard hit, as investors withdrew $335.2 billion, or 2.2% of February month-end assets. Outflows for the January-to-March period were only a bit less grim at $291.7 billion.
ETFs got off a bit easier during the March selloff. The overall decline in assets was lessened because investors held steady on a net basis, adding $9.3 billion in positive flows into the vehicle during the month.
Fixed-income ETFs struggled in March, suffering $20.7 billion in net negative flows. In contrast, alternative ETFs amassed significant flows for the year to date, especially relative to the category’s small size, $46 billion.
Investors added net flows of $684.7 billion into money market funds in March, leading to a 19% increase in assets to $4.3 trillion, Cerulli’s analysis found. However, there were different outcomes within the three broad Morningstar categories: taxable, tax-free and prime funds.
Taxable money market funds added $824 billion, while tax-free and prime experienced outflows of $3 billion and $136 billion. The discrepancy in flows highlighted investor demand for safety of government-backed securities, Cerulli noted.
Cerulli said in a statement that, some bright spots aside, the performance of key liquid alternatives categories in the first quarter, as well their long-term performance relative to traditional investments such as stock and bond funds, make them a tough sell to advisors and their clients. Numerous categories have suffered relatively steep declines.
Still, some liquid alternative categories have provided strong performance as markets declined. Managed futures funds were flat in the first quarter after a long period of poor returns, providing a welcome bright spot. Managed futures exhibited the lowest five-year correlation to equity markets.
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