Managers Need Plan for Concurrent ETF, Illiquid Alternative, and Mass Customization Trends
August 3, 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 June 2021, including an increased interest in ETFs from asset managers, a rapid buildout of direct indexing capabilities, and fee compression among index and active mutual funds.
Highlights from this research:
- Mutual fund and ETF assets grew for six consecutive months to start 2021 and now sit at $20.1 trillion and $6.5 trillion, respectively. Mutual fund net flows total $256.0 billion during the six-month period, while ETF net flows were $451.8 billion.
- The ETF opportunity is an attractive one for asset gathering, with active thematic offerings providing a potential middle ground for managers still awaiting proving points on active transparent and semi-transparent ETFs. The growth and increased importance of private capital is a risk to traditional asset managers, but traditional firms—should they be able to develop quality capabilities—will have a likely underappreciated home-field advantage for distributing such offerings, where cost competition will become more important. Mass customization and direct indexing will increasingly impact the industry. Cerulli recommends that active managers target the associated model delivery opportunity.
- Index and active mutual funds have seen different trends in areas of fee compression. Index mutual funds average management fees have been nearly cut in half from 3.9 basis points (bps) in 2015 to 2.1 bps in 2020. Active mutual funds have seen a consistent trend of fee cutting. For active, the higher rate of reduction in average total net expense ratios shows that opportunities for cost cutting outside of management fees have been the opportunity and focus of active managers. Moreover, demand for lower-cost share classes has led to flows being directed into institutional and R6-share classes. Cerulli expects demand for these share classes to continue, as both see their asset-weighted average management fee at the lowest point in history.
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