This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes mutual fund and exchange-traded fund (ETF) product trends as of March 2020. This issue also reflects on the tumultuous first quarter of 2020, as record-setting mutual fund and money market fund monthly net flow figures highlight investor fear and uncertainty. The Special Coverage article discusses a recent dip in liquid alternative performance, making these products a tough pitch to advisors and their clients.

Highlights from this research:

• In total, investors pulled approximately $320 billion from mutual funds and ETFs during March, although there are asset classes such as passive U.S. equity ($40.9 billion) that were exempt from the general trend. The demand for passive U.S. equity likely stems from investors reallocating into high-quality, low-cost equity index-tracking products to take advantage of the more attractive prices that resulted from the severe equity market declines.
• The selloff was felt by asset managers as they endured double-digit asset declines, with mutual funds falling 13.6% and ETFs declining 12.4% during the month. The issues for mutual fund managers were compounded by the fact that net flows moving out of the vehicle totaled an astounding $335.2 billion, or 2.2% of February month-end assets.
• The overall decline in ETF assets was lessened by the fact that investors held steady on a net basis, adding $9.3 billion in positive flows into the vehicle during March. Fixed-income ETFs struggled in March, suffering $20.7 billion in net negative flows. Alternative ETFs gathered significant flows YTD, especially relative to the small size of the category ($46 billion).
• Investors also piled into money market funds, adding net flows of $684.7 billion, leading to a 19% increase in assets to $4.3 trillion. However, there were different outcomes within the three broad Morningstar categories: taxable, tax-free, and prime funds. Taxable money market funds added $823.5 billion, while tax-free and prime bled $3.0 billion and $135.9 billion, respectively. The discrepancy in flows highlights investor demand for safety of government-backed securities.
• Cerulli believes that while there are certainly bright spots, the performance of key liquid alternatives categories in 1Q 2020 as well their long-term performance relative to traditional investments such as stock and bond funds make them a tough pitch to advisors and their clients. Many of the categories have faced relatively steep declines; although, some liquid alternative categories have provided strong performance as markets declined. One bright spot has been managed futures funds, which, after a long period of poor returns, were flat in 1Q 2020. Managed futures exhibited the lowest five-year correlation to equity markets.