This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes mutual fund and exchange-traded fund (ETF) product trends as of January 2023 with a special focus on institutional investors’ expected allocations to active strategies.

Highlights from this research:

• Mutual funds closed 2022 on a sour note, with assets having dropped 4.5% in December. Reversing course, asset growth was favorable to start 2023, with the vehicle’s assets climbing 5.8% to $17.2 trillion. While mutual funds are in overall outflows (-$1.9 billion), some asset classes have gathered positive net flows to start 2023. Taxable bond mutual funds, which suffered more than $380 billion in outflows during 2022, managed to add more than $15 billion during January 2023. Similarly, municipal bond mutual funds added $7.7 billion during the month, bucking the 2022 trend in which outflows amounted to $148.7 billion.                                                                                           

• After climbing 6.6% during January 2023, ETF assets stand poised to surpass the $7.0 trillion barrier, ending the month at $6.9 trillion. Net flows during January continue to be steady, coming in at $44.3 billion, slightly below the $52.6 billion monthly average for the preceding five months. Despite representing 17.7% of total ETF assets, taxable bond flows accounted for 28% ($22.6 billion) of all ETF flows in January 2023. The success can be largely attributed to Treasury bond ETFs.

• The gap between active and passively managed funds hit new lows in December 2022; however, according to a Cerulli survey, most institutional investors still want a majority of their portfolios to be actively managed. A noteworthy number of institutional investors indicate increasing their allocations to active strategies in equities (28%) and fixed income (20%).  Of those institutional investors that indicate an expansion in the use of active equity strategies, nearly one-third (32%) expect to increase their allocations to U.S. equity.