Fears of Inflation Cause Mutual Fund and ETFs to Shed Assets in January

March 4, 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 January 2022, assesses rising outsourced chief investment officer (OCIO) advisory fees, and explores how institutional investors are responding to the low-interest-rate environment.

Highlights from this research:

  • Both mutual fund and ETF assets declined by more than 4% during January (-4.2% and -4.9%, respectively). Mutual fund assets dipped below the $20 trillion mark in January, ending the month at $19.8 trillion, and ETF assets fell to $6.9 trillion. Mutual fund net flows suffered $12.5 billion in outflows, while ETFs still managed to pull in $21.4 billion in net positive flows.
  • The consistently low-interest-rate environment is a major factor for asset owners in deciding to adopt an OCIO model. Managing the impact of the low-interest-rate environment and the more recent concern that interest rates are likely to rise are reasons that OCIO clients cede discretion to a third party. OCIO clients, like most institutional clients, are increasing their demand for alternative asset classes. For the smaller OCIO clients, they also have better access to private investments than they would on their own. Often, these smaller clients can’t meet minimum investment amounts for attractive private market opportunities. The access to better quality private markets does not come without a cost. Cerulli sees evidence that average fees, on the margin, have increased for most corporate defined benefit (DB) and nonprofit clients regardless of size. However, Cerulli does not expect average OCIO advisory fees to increase to levels typical five or 10 years ago.
  • For institutional investors that are tasked with fulfilling benefit obligations, such as insurance general accounts, public, and corporate DB plans, persistent low interest rates pose a significant challenge. More than half of insurance CIOs (56%) told Cerulli that they plan to increase their exposure to alternative fixed-income investments as a response to low interest rates. Public DB plans have justified a higher assumed returns rate by investing in growth-oriented assets, such as public and/or private equity. Corporate DB plans have been reducing their allocations to equities while increasing their allocations to fixed income.

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Note to editors

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

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