Personalized SMAs Challenge the Hegemony of Mutual Funds

March 30, 2022 — Boston

This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes mutual fund and exchange-traded fund (ETF) product trends as of February 2022, assesses the future trajectory of personalized separately managed accounts (SMAs), and explores why asset managers are expanding their ETF and SMA capabilities.

Highlights from this research:  

  • Mutual fund outflows accelerated into February as the vehicle suffered $32.1 billion in net negative flows vs. just $13.0 billion in January. Assets fell more than 2% to $19.3 trillion, now down nearly $1.5 trillion from year-end 2021 ($20.8 trillion). ETF assets fell for the second straight month, declining 1.1% to $6.8 trillion. Net flows moving into the vehicle remained positive at $79.7 billion.                                                                
  • Asset management firms are applying the algorithmic portfolio construction techniques of direct indexing to fixed income and active equity strategies, opening a broader class of products that are best described as personalized SMAs. Personalized SMAs, which offer customized investor solutions, will begin to challenge the hegemony of products in ‘40-Act wrappers, especially mutual funds. Asset management firms will have to reorient the way they technologically integrate these solutions with managed account sponsors as well as how they position these solutions with advisors and their clients.
  • Creating a vehicle-agnostic lineup, with products that fit the needs of distribution partners is an ongoing process, one that does not stop when ETFs and SMAs go to market. Asset managers must continuously evolve their offerings to fit the changing needs and technologies of partner firms. The more that an asset manager’s new vehicle offerings dovetail with a sponsor’s technology, and the more that they solve a problem for financial advisors using the platform, the better the chance of distribution success.

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Note to editors

These findings and more are from The Cerulli Edge—U.S. Monthly Product Trends, March 2022 Issue.

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