This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes mutual fund and exchange-traded fund (ETF) product trends as of August 2020, discusses the outlook on institutional fixed-income ETF adoption, and evaluates the role of fixed income in defined contribution (DC) plans.

Highlights from this research:

• Backed by strong equity markets during August, and to a lesser extent positive net flows, mutual fund and ETF assets both surged past December 2019 highs at the end of August. Mutual funds closed the month above $16.8 trillion, while ETFs surpassed the $4.8 trillion mark. Mutual funds added flows of only $6.5 billion during August and suffered outflows of $4.5 billion from April to August. Net flows into ETFs fell for the second straight month but still total a robust $34.7 billion.

• ETF assets are expected to continue to grow aggressively and ETF issuers see adoption of fixed-income ETFs and increasing institutional penetration as keys to growth. Institutional bond investors (e.g., insurance general accounts) have been slow to adopt ETFs, but the proliferation of ETF offerings, changing regulatory treatment, availability of actively managed product, and proven liquidity are changing institutions’ views. As ETFs expand beyond passive implementations and into more esoteric sub-asset classes and styles, education from issuers will be key to adoption.

• Respondents to Cerulli’s 2020 Target-Date Manager Survey were asked how they anticipated first-quarter volatility to impact various aspects of their target-date investment strategy over the next two years. One-quarter (25%) indicate that they expect an increase in reviews of equity allocations through target-date glidepaths. The majority (88%) of target-date managers indicate that their firm’s target-date products do not currently include allocations to a stable value component—the primary reasons being a lack of demand from plan sponsors, advisors, and consultants, as well as the fact that stable value remains more expensive than traditional bond funds. Although the role of stable value in target-date funds remains small, it has seen much greater acceptance as a standalone retirement income option on plan menus.