Signs of a Turning Tide

U.S. Distribution Pulse Quarterly  |  2Q 2023

Signs of a Turning Tide

U.S. Distribution Pulse Quarterly | 2Q 2023

June 2023

By Scott Anderson

In the first quarter of any given year, we typically see shifts in flows in the distribution landscape for packaged products as investors transition from year-end tax loss harvesting. In the Q2 U.S. Distribution Pulse Quarterly webinar, we share data and analysis highlighting that flow trends took a turn from the norm.

A Change in Outflow Patterns


As we observed in “A Year of Persistent Distribution Shifts (U.S. Distribution Pulse Quarterly  |  1Q 2023),” tax loss harvesting can disguise longer-term shifts among mutual funds, exchange-traded funds (ETFs) and separately managed accounts (SMAs). But as 2023 has progressed, BNY Mellon Growth DynamicsSM data has uncovered signs of an emerging reversal in a consistent pattern of MF outflows and ETF inflows.1


For the first time since 2020, ETFs saw outflows. Compared to a growth rate in net sales of 3.2% in Q4 2022, growth went negative in Q1 2023, with a contraction of 1.1%. On the other hand, mutual fund outflows experienced a smaller decline in sales, losing just 0.4% in Q1 2023 versus 4.7% in Q4 2022. This quarter represents the lowest quarterly outflows for mutual funds since Q4 2021, when the current cycle of outflows began.


Nevertheless, mutual funds are still losing overall share of AUM to ETFs. Our data suggest that equity market volatility and broader uncertainties could play a role in stabilizing mutual funds’ shrinking share of AUM. We are watching the potential emergence of this trend closely. (Figure 1)

Figure 1: Net Sales Growth Rates - By Investment Vehicle

Fixed Income as a Driving Factor


Our data also show the increasing impact of fixed-income investments on the relative shares and flow patterns among packaged products. This finding likely reflects an overall flight to safety in response to volatility. Muni Fixed Income SMA and Long & Short Government Index ETFs have played a consistent role in driving inflows. In addition, Core-Plus Bond, Multisector Bond and High-Yield Muni mutual funds surged in sales after multiple periods of outflows.

Figure 2: Percentage of Fee Based Netflows by Asset Class: National Broker Dealers - 2022

Equities tell quite a different story. Large Growth, Bank Loan and Foreign Large Growth remain a notable source of outflows from mutual funds. On the ETF side, Large Blend (Index), Large Value (Smart Beta) and Foreign Large Blend (Index) all contributed to the surprising contraction in ETF net sales this quarter. SMAs also saw a resurgence in U.S. equity flows in Large Cap Core and Large Cap Value, creating an oasis of outperformance in an otherwise tough quarter for equities. In part, we can attribute this variance to the cost-effectiveness of SMAs and the perceived safety of large-cap equities.


We are also observing market concentration in certain investment styles. For example, more than 95% of ETF AUM in the Long Government Index, Large Growth Smart Beta, and Derivative Income Active strategies is managed by the top three firms. However, we see potential pockets of opportunity for ETFs in categories such as Short Government Index, Mid Cap Value Smart Beta and Commodities, with the top three firms managing less than 60% of assets.




We unpack these and more trends with additional data and analysis in our Q2 U.S. Distribution Pulse Quarterly Webinar (June 15, 2023). In the discussion, we highlight potential scenarios for a reversing tide as we cross into the second half of the year.


Register to tune in or access the replay after the event.

Scott Anderson

Director of Research, BNY Mellon Growth DynamicsSM


1All data is sourced from BNY Mellon Growth Dynamics as of March 31, 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 representing approximately $4.1 trillion in assets under management with national broker-dealers. The data set represents sales through a financial advisor and excludes institutional and retirement plan sales.


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