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.
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)