U.S. Distribution pulse quarterly  |  4Q 2023



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After strong share gains during the first half of 2023, equities showed weaker performance in the third quarter, with the S&P 500 declining by 3.7%, the Dow Jones Industrials down 2.6% and the NASDAQ Composite down by 4.1%.1

Nevertheless, investors have continued to slowly tilt allocations away from safety towards growth, even as they look for flexible investment product structures, as suggested by fund flows at the wirehouses. This context explains the continued rebound of exchange-traded funds (ETFs) and separately managed accounts (SMAs) in both equities and fixed income across wirehouse programs.


In Q3 2023, mutual funds continued to lose their share of assets under management (AUM), now standing at 45% as commission-based and rep-as-advisor program outflows continue to siphon assets. At the same time, U.S. equity has delivered sales growth for ETFs and SMAs and credit market trends have lifted fixed-income sales across all three wrappers. An in-depth look at the data highlights the factors driving this asset class remix.


Large impacts from large cap

BNY Mellon Growth Dynamics℠ data shows AUM continuing to drain out of mutual funds as ETFs and SMAs absorb sales within wirehouses. SMAs experienced their highest inflows since Q1 2022 (up 2% to $692 billion, Figure 1), while ETFs extended the 1% growth they delivered in Q2 2023 (at $1.04 trillion, up 2.5% versus Q1 2023, Figure 1).


Sales are typically a trailing indicator of market performance. The S&P 500 contracted by 3.7% in Q3 2023, but was still up 26.2% for the year overall as of September 30.2  Also in Q3, the large-blend ETF category achieved $6 billion in net sales, the most since 2021, with a further turnaround in most other U.S. equity styles. 

Figure 1: Wirehouse net sales growth rates by investment vehicle


Figure 1: 2021 Fee-based Net Sales: Equity and Fixed Income*

Source: BNY Mellon Growth Dynamics. Trend data as of September 30, 2023.

The asset class remix

Equities drove the most notable growth stories in Q3 2023. U.S. Equity Index, Smart Beta and Active ETFs, plus Direct Index SMAs, drew the highest percentage of inflows across all wrappers and asset classes (24% to ETFs and 15% to SMAs). On the other hand, U.S. equities were a rough spot for mutual funds, creating more than two-thirds of the total outflows (Figure 2).


Conversely, taxable fixed income provided the only bright spot with inflows for mutual funds, amounting to 6% of total inflows across all wrappers. SMAs also benefited from inflows to municipal products. Short- and ultra short-duration fixed income provided the one exception, with significant outflows, as described below.

Figure 2: Netflows by asset class Q3 2023 - wirehouse fee-based advisory


Figure 1: 2021 Fee-based Net Sales: Equity and Fixed Income*

Source: BNY Mellon Growth Dynamics. Trend data as of September 30, 2023.

The impacts of investment style

In an environment where large-blend products captured three of the top 10 rankings by investment style for Q3 2023, Index and Smart Beta ETFs and Direct Index SMAs were the structures of choice for investors, gathering 94% of total sales. Our data also finds a high degree of concentration, with 45% of sales coming from just three specific products.

Figure 3: Percentage of Q3 large blend positive net sales


Figure 1: 2021 Fee-based Net Sales: Equity and Fixed Income*

Source: BNY Mellon Growth Dynamics. Trend data as of September 30, 2023.

Between yield and duration

Some fixed-income ETFs with positive net sales over the last 12 months experienced a trend reversal. Our data shows a consistent theme – rotation away from medium- to short-duration products. Despite higher yields, Active ETFs with less than one-year effective duration lost AUM. 


This change suggests several factors in a volatile environment where advisors feel uncertainty about the trajectory of interest rates. Compared to higher-risk, short-duration products, they may be betting on future rate decreases. Longer durations also suggest a focus on capital appreciation and a desire to lock in higher yields versus taking on the reinvestment risk in the short-term portion of the curve. Municipals are also attracting attention from advisors with attractive after-tax yields.   


Market shifts have a measurable impact on advisor preferences for products and management styles within wrappers. In a volatile environment, it is more important than ever to provide timely trend data to help sales, marketing and product teams connect with a changing market. 


Please reach out to the Growth Dynamics team who can help you use this market data to uncover opportunities and achieve deeper engagement with financial advisors.


All flow data is sourced from BNY Mellon Growth Dynamics as of September 30, 2023. The aggregate data used in this analysis is based on Mutual Fund, ETF and SMA asset and sales data reported to BNY Mellon Growth Dynamics under a data sponsor agreement. Data currently represents approximately $3.1 trillion in AUM with national broker-dealers. The data set includes sales through a financial advisor and excludes institutional and retirement plan sales.

1 Nasdaq Market Activity : S&P 500 Index, Dow Industrials Index, NASDAQ Composite Index -  as of 21 November, 2023
2 Nasdaq Market Activity: S&P 500 Index - as of 21 November, 2023


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All data as of September 30, 2023 unless otherwise stated. 


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