U.S. Taxable Bond ETFs Lead All Other Asset Classes in Net Flows

U.S. Taxable Bond ETFs Lead All Other Asset Classes in Net Flows


July 2018, Boston. The July 2018 issue of The Cerulli Edge - U.S. Monthly Product Trends Edition analyzes mutual fund and exchange-traded fund (ETF) product trends as of June 2018. This issue also provides special coverage on the state of subadvisory services in the ETF vehicle, including demand, growth trends, areas of focus for seeking new mandates, and components of maintaining a good subadvisory relationship.

Highlights from this research:

  • After two months of growth, June saw a dip in assets for both mutual funds (-0.8%) and ETFs (-0.7%). Flows were also a challenge for both vehicles in June, with mutual funds reporting a yearly low (-$17.4 billion) and ETFs reporting just above their yearly low (-5.3 billion). Fixed-income mutual funds have attracted $89.4 billion in net inflows 2Q 2018 YTD, 61% of which has gone to active product, making it a bright spot for active managers. For ETFs, taxable bonds continue to attract the most inflows within the ETF wrapper of any asset class ($43.4 billion YTD).
  • ETF growth has been robust, but subadvised ETFs remain a small percentage (3%) of total ETF assets. The key to asset growth for many subadvised active or strategic beta ETFs will be increasing advisor use of the product types, many of which have not accumulated assets. Home-office adoption will also be essential, as many advisors have sought to use, or have been nudged toward using, home-office investment models. Current obstacles include limited supply, relative newness of available products, perceived/actual complexity, and economics of the distribution business.
  • Cerulli finds that sponsors are rethinking how they engage with unaffiliated subadvisors. Compliance and reporting requirements are increasing, and some sponsors are beginning to suffer from oversight fatigue, incentivizing them to call upon the subadvisors they already have a relationship with to service new mandates. For a subadvisor to take advantage of this opportunity and deliver the services sponsors are seeking, one of the most critical components is providing their client with information in a timely manner. In particular, 85% of sponsors note that timeliness of regular reporting and responding to ad hoc requests is “very important,” and providing information to the fund board is not far behind at nearly 70%.

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