This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes mutual fund and exchange-traded fund (ETF) flows as of December 2022, with a special focus on anticipated product development opportunity in 2023.

Highlights from this research:

• Mutual fund assets declined $4.5 trillion (21.6%) in 2022, shedding flows of $958 billion, or 4.6% of year-end 2021 total net assets. While all mutual fund asset classes suffered net outflows during each month in 4Q 2022, alternative funds still attracted net inflows of $19.0 billion for all of 2022.

• ETF assets declined only $718 billion over the same period but gathered positive flows of $589 billion, or 8.2% of year-end 2021 total net assets. Inflows have occurred despite volatile markets, which underscores the resilience of underlying demand trends. Taxable bond and municipal bond ETFs played a more important role in 2022, increasing their combined proportion from 17.6% to 19.6% of the U.S. ETF industry.

• Long-running industry trends are expected to continue to offer tremendous product development opportunity in 2023. Cerulli expects ETFs to continue gathering outsized flows, but via more traditional exposures (e.g., fixed income) versus the riskiest equity funds. Despite challenges, the focus on private wealth channels for alternative allocations via intermittent liquidity product will remain, presenting an important product development opportunity. Advisors will continue to increase uptake of asset allocation models, which in turn will continue to shift toward the ETF structure, and also to separately managed accounts (SMAs).