Asset Managers Position Private Capital Exposures as Inflation Hedge
June 3, 2022 — 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 2022 and assesses advisor allocation to inflation and rising-rate-protected strategies, including alternative investments.
Highlights from this research:
- Mutual fund assets sharply dropped in April to $18.0 trillion, receding by more than 7% amid the broader market pullback. Since the end of 2021, the vehicle has shed 13.4% of assets. ETFs did not fare any better, as assets dropped 7.3% to $6.5 trillion, a nearly $500 billion loss of assets over the month. Both vehicles suffered outflows during April, with mutual funds losing $78.3 billion and ETFs ceding $12.0 billion.
- The inflation-protected sub-asset class received only 8% of U.S. taxable fixed-income allocations in 2021, a share Cerulli anticipates will consistently increase throughout 2022. For Series I Savings Bonds issued from May 2022 through October 2022, the interest rate is 9.62%. In most cases, investors can purchase only up to $10,000 in I bonds through TreasuryDirect.gov each calendar year. Additionally, one can purchase up to $5,000 in paper I bonds using a federal income tax refund each calendar year. Offering alternative strategies as an inflation hedge continues to increase as an objective—58% of firms cite it as a key objective in 2021, compared to just 21% in 2019.
- Cerulli recommends that asset managers that are offering, or are actively evaluating opportunities to offer, private capital exposures to retail investors will experience stronger tailwinds in the coming years as inflation (and inflation-related interest-rate movements) dampens returns of traditional asset exposures. In the long term, Cerulli believes the winners will be firms that can offer attractively priced exposures via best-fit structures—along with those that are able to communicate inflation-hedging capabilities to advisors and end-investors.