Cerulli research shows significant uptake by US institutions in ETF usage

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Latest US research from Cerulli Associates finds that backed by strong equity markets during August, and to a lesser extent positive net flows, mutual fund and ETF assets both surged past December 2019 highs at the end of August. 

The firm writes that mutual funds closed the month above USD16.8 trillion, while ETFs surpassed the USD4.8 trillion mark. Mutual funds added flows of only USD6.5 billion during August and suffered outflows of USD4.5 billion from April to August. Net flows into ETFs fell for the second straight month but still totalled a robust USD34.7 billion.

ETF assets are expected to continue to grow aggressively, Cerulli says, and ETF issuers see adoption of fixed-income ETFs and increasing institutional penetration as keys to growth. Institutional bond investors such as insurance general accounts have been slow to adopt ETFs, but the proliferation of ETF offerings, changing regulatory treatment, availability of actively managed product, and proven liquidity are changing institutions’ views, the firm reports. 

As ETFs expand beyond passive implementations and into more esoteric sub-asset classes and styles, education from issuers will be key to adoption. Respondents to Cerulli’s 2020 Target-Date Manager Survey were asked how they anticipated first-quarter volatility to impact various aspects of their target-date investment strategy over the next two years. One-quarter (25 per cent) indicate that they expect an increase in reviews of equity allocations through target-date glidepaths. The majority (88 per cent) of target-date managers indicate that their firm’s target-date products do not currently include allocations to a stable value component—the primary reasons being a lack of demand from plan sponsors, advisors, and consultants, as well as the fact that stable value remains more expensive than traditional bond funds. Although the role of stable value in target-date funds remains small, it has seen much greater acceptance as a standalone retirement income option on plan menus.

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