This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes trends in asset class flows as of May 2022, including mutual funds, exchange-traded funds (ETFs), and alternatives, with special coverage of money market funds.

Highlights from this research:

• After shedding 7.2% of total assets in April, mutual funds suffered another drop during May, losing 0.5%. As markets stabilized, net flows were the culprit, as investors pulled more than $110 billion out of mutual funds during the month, representing organic growth of -0.6%. After entering the year with $7.2 trillion in assets, the ETF industry has seen assets fall to $6.6 trillion, despite adding more than $250 billion in net flows. Only the municipal bond and commodities asset classes have greater assets than at the start of the year.

• On average, all asset classes exhibited positive organic growth during periods of recovery. The gathering power of asset classes such as alternatives and taxable bonds can be attributed to a search for yield, thus attracting assets from money market and cash positions that otherwise would have had real returns near zero during most recovery periods over the past decade. Rate rises occurring now set a different stage. In the context of corrections since the Great Financial Crisis, a number of factors affecting the economy and financial markets makes this time different. If the bond markets are a leading indicator, it may be that the pain has not yet hit equity funds, and elevated levels of selling are just around the corner.

• Despite the challenges faced by persistent inflation and regulation, the money market fund industry could yet benefit from increasing interest rates as the Fed looks to clamp down on inflation. Rising rates should make yields more attractive, although inflation will need to come down for money market managers to realize the full benefit of ongoing rate hikes.