Interval Funds Draw New Interest from Asset Managers Seeking Flexibility and Improved Revenue Generation
May 29, 2020 — Boston
This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes mutual fund and exchange-traded fund (ETF) product trends as of April 2020. This issue also explores asset managers’ increasing interest in the interval fund vehicle, due to its ability to invest in liquid and illiquid holdings, while providing some relief from continued fee pressure. The Special Coverage article discusses what happened to fixed-income funds in March 2020, as mutual funds and ETFs experienced staggering outflows.
Highlights from this research:
- On the heels of a massive 13.3% decline in March, mutual fund assets rebounded in April. Total assets climbed 8.1% to more than $14.5 trillion. Net flows remain negative (-$29.3 billion), with active mutual funds bleeding $25.6 billion and passive losing $3.7 billion. Taxable bond funds were aided by $14.2 billion in positive net flows (after losing $221.1 billion in March) and U.S. equities were in net negative flows regardless of management style.
- Positive flows into the ETF vehicle continued with a very strong $45 billion added in April, with the vehicle returning to $4.0 trillion (from $3.7 trillion in March) with the help of market performance. The taxable bond ETF asset class gathered $22 billion (a notable sum given that the Fed had not yet commenced ETF buying), while sector equity and commodities categories also had attractive flows. ETF investors continued to shed their international equity holdings.
- Investors pulled more than $100 billion from fixed-income mutual funds and ETFs during both the weeks ending March 18 and March 25, 2020. After quick intervention from the Federal Reserve, it appears investors’ fears have eased, with the fixed-income broad asset class moving back into positive net flows during the latter half of April, adding net flows during the weeks ending April 15, 22, and 29. This correlates with investment-grade fixed-income prices, represented by the Bloomberg Barclays Aggregate.
- A wide variety of asset managers are looking to the interval fund vehicle for its ability to invest in both liquid and illiquid holdings across asset classes while providing some relief from continued fee pressure. While the vehicle’s flexibility and its use cases are promising, Cerulli notes that barriers to its wider proliferation remain and that challenges related to COVID-19 will need to be overcome. Cerulli believes that interval fund manufacturers should focus efforts on the education and marketing of both their products and the interval fund vehicle, including via trade publications and social media.