ETFs Gather Record Net Flows of More than $500 Billion in 2020
January 29, 2021 — Boston
This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes mutual fund and exchange-traded fund (ETF) product trends as of December 2020 and offers several predictions for both vehicles in 2021.
Highlights from this research:
- Mutual fund assets topped $18 trillion at the end of 2020, despite suffering more than $289 billion in outflows during the year. ETF assets reached $5.5 trillion at the end of 2020, adding more than $1 trillion from year-end 2019 ($4.4 trillion). ETFs gathered a record $520 billion in net flows during 2020, propelled by taxable fixed-income ($195.9 billion) and U.S. equity ($131.8 billion) funds.
- While the transition from mutual funds to ETFs is ongoing, inertia will result in a long uptake period for semi-transparent ETFs while the conversion use cases may remain limited. As both the asset and wealth management industries battle fee compression, attractive partnerships will remain critical. Educational partnerships may help guide assets into products that are attractive to both parties. Instead of shunning more risky and innovative elements of the ETF ecosystem, Cerulli recommends that issuers evaluate whether they can or should play along.
- Mutual funds remain the most common vehicle choice for investors, but managers offering the vehicle face a challenging 2021 landscape. Data from a 2020 survey of product executives at mutual fund companies reveals that 88% of firms plan to prioritize development and distribution of other vehicles over the mutual fund. Of mutual fund product executives, 60% indicate they will offer fewer share classes, while another 44% expect to offer fewer strategies. Moreover, fee compression can be expected to continue as managers move more investors toward lower-cost share classes, thus reducing the all-in cost to investors.
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