Assets Spike for NTRs, Interval Funds, and BDCs

May 2, 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 March 2022, discusses the recent growth of non-traded real estate (NTRs), interval funds, and business development companies (BDCs), and explores why financial advisors are using alternative investments to help generate client income.

Mutual fund assets were relatively flat in March and are down more than 6% from year-end 2021. The vehicle has a higher relative concentration of fixed-income assets, so it has been challenged by falling bond prices, evidenced by a 5.9% drop in the U.S. Aggregate Index during the first quarter. Only the alternative mutual fund asset class ($3.6 billion) managed to gather positive net flows during March. ETF assets jumped nearly 3% in March thanks to a broad equity market rebound during the month, as well as $97.2 billion in net flows. Over the course of the first quarter, the vehicle has added just less than $200 billion in net flows, although assets remain down 2.4% from year-end 2021 highs.

NTRs, interval funds, and BDCs held almost $300 billion in assets as of year-end 2021, a steep increase over the $176 billion in 2020. The growth was driven by strong sales of Blackstone offerings. While brand is exceptionally important in a segment where investment selection truly matters, a wider range of managers will be able to compete based on the provision of specialty/niche exposures, distribution strength, and, to a lesser extent, fees. Intermittent liquidity products remain expensive and require careful evaluation for suitability by home offices and advisors.

A 2021 Cerulli survey of financial advisors found that more than 90% are at least somewhat focused on helping their clients generate income. Alternatives have been one such solution, with 59% of advisors using alternatives identifying current income as their goal. Cerulli buckets alternatives into three broad types: illiquid alternatives, convergence zone products, and liquid alternatives. When asked about the key objectives of retail marketplace alternatives, nearly 75% of alternative asset managers selected current income in a 2021 Cerulli survey. One avenue through which advisors have sought alternative income has been nontraditional bond funds.

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Note to editors

These findings and more are from The Cerulli Edge—U.S. Monthly Product Trends, April 2022 Issue.

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