This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes product trends as of December 2023, including mutual funds and exchange-traded funds (ETFs).

Highlights from this research:

• Mutual funds shed $70.6 billion of assets due to flows in December, though assets still grew by $670 billion during the month due to strong market performance. Passively managed mutual funds were able to offset only $4.1 billion of the $74.7 billion of outflows from actively managed mutual funds during the month.

• Total ETF assets grew 24.5% in 2023, after seeing 10.6% growth in the second half of the year. ETF assets grew $439 billion in December, with $128 billion attributed to net inflows. Passively managed ETF flows outpaced those of actively managed by $100 billion, though actively managed posted a higher organic growth rate of 2.9% vs. 1.6%, respectively.

• A variety of asset managers are looking to launch active ETFs. While this is a natural step for many managers, the use of active exposures within the ETF structure, known for providing low-cost exposures advisors build themselves, still is in an early stage. Managers should offer well-differentiated active products at a lower cost. With fixed-income exposures increasingly able to carry out their income objective and offer downside protection, alternative investment managers are finding a tougher sales environment. Cerulli recommends they focus on the practice management benefits of using alternative investments when speaking with clients. With money market funds holding a record $6 trillion and continuing to gather assets, Cerulli believes the exposures will be attractive to advisors as long as higher rates exist.