This issue of The Cerulli Edge—U.S. Monthly Product Trends analyzes product trends as of February 2024, including mutual funds and exchange-traded funds (ETFs) and assesses institutional investors’ expected allocations to fixed income.

Highlights from this research:

• Both strong equity market performance and net inflows of $13 billion into mutual funds in February boosted assets to more than $19 trillion during the month, as assets grew $634 billion (3.4%). Mutual funds gathered net inflows for the first time since November 2021.

• ETF assets charged ahead by $337 billion to new highs on flows of $46 billion during February. While U.S. equity, international equity, and sector equity all had a strong February, gathering $45 billion of net flows, it was alternative ETFs that stole the spotlight as assets grew $34 billion on nearly $6 billion of net inflows.

• After a long period of outflows from public fixed-income strategies, the actions taken by the Federal Reserve to increase interest rates in 2022 and 2023 have renewed institutional investors’ demand for these strategies. A majority of institutional investors expect to add to their fixed-income allocations over the next 24 months. According to eVestment data, fixed-income strategies experienced positive flows in each quarter of 2023. However, most of the positive flows were into cash management or passively managed strategies. The increase in interest rates tempered demand for private credit strategies, as investors became concerned with potential default risk. However, as interest rates are expected to fall, investors are likely to allocate more heavily to the asset class, posing a challenge to traditional fixed-income managers.

Source: Cerulli