There has been a great deal of emphasis placed around the narrative of active versus passive trends, especially when it comes to fund flows. It is widely known that ETFs have seen significant growth over recent years, and often at the expense of mutual funds. What can be somewhat misleading is limiting this fund flow discussion to active mutual funds and passive or index ETFs only.
When analyzing active and passive trends, we believe it’s critical to include all investment vehicles that fall under that banner. We take a more holistic approach to product trend flows and include mutual funds, ETFs (index, smart beta and active) and especially Separately Managed Accounts (SMAs). SMAs have experienced steady growth over the last few years and should not be overlooked when discussing active flows.
During a recent webinar focused on active trends, I highlighted trends based on pockets of growth for both mutual funds and SMAs. Below are three key insights that were shared with our clients.
While U.S. Equity flows have been leaning heavily towards ETFs (both passive and smart beta) over the last few years, we have seen slow and steady SMA U.S. Equity growth. International and Global Equity funds have experienced outflows for mutual funds and ETFs (both passive and smart beta) while SMAs have garnered minimal growth.
When looking at the overall landscape, the vast majority of “active management growth” over the last 12 months was around fixed income for both Mutual Funds (MFs) and SMAs. This includes Taxable Fixed Income and Muni Fixed Income.
Chart 1. Net Sales by Asset Class: Fee-Based Programs – TTM Sept 20191
Top 3 Mutual Fund Taxable Fixed Styles and % of Inflows
Top 3 Separately Managed Accounts (SMA) Taxable Fixed Income Styles and % of Inflows
While Core and Core Plus saw large outflows in Q4 2018 in both mutual funds and SMAs, mutual funds saw a dramatic rebound in Q1 2019 for both styles while Core Bond SMA did not see traction until Q3 2019.
Chart 2. Core & Core-Plus Net Sales1
While Muni Fixed Income saw impressive inflows for both Mutual Funds and SMAs, laddered muni SMA strategies have been seeing significant growth. These strategies have been attractive to advisors as they provide their clients fixed income solutions with reduced risk while allowing more flexibility and liquidity. While Muni Ladder growth has been getting a great deal of attention, it is very top heavy with the top three asset managers accounting for more than 80% of assets.
Active ETFs played a significant role in overall fixed income fund flows. The vast majority of active ETF inflows were to Ultrashort Bond (83%), and Short Term Bond (11%) funds. Additionally, Ultrashort ETFs (active) saw just as many net sales on fee based programs as ultrashort mutual funds over the last 12 months.
As asset managers look to gain a better understanding of how advisors are leveraging a combination of active and passive strategies, it’s critical to arm sales, marketing and product teams with impactful data-driven insights. One central theme in the industry has been the increased importance of using data across these respective groups to ultimately help drive sales efforts.
To that end, BNY Mellon will continue to provide clients with actionable, relevant analysis through its Intermediary Analytics solutions. BNY Mellon Data and Analytics Solutions integrates the resources of Intermediary Analytics, Eagle products, and other BNY Mellon technology and data assets to build client-centric technology and content solutions. By providing distribution trend analysis, the Intermediary Analytics solutions will help clients understand the drivers behind advisors’ use of active and passive products, which can be an important first step when engaging with financial advisors.
1 BNY Mellon Intermediary Analytics data, as of September 30, 2019.
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Vice President, Intermediary Analytics
Scott Anderson is Vice President, Intermediary Analytics, part of BNY Mellon's Data and Analytics Solutions. Scott is responsible for all research and custom analysis delivered to clients in the form of industry summaries, presentations and special reports. He develops research and analysis that delivers insights into the national broker-dealer community, detailing trends within specific investment vehicles, investment styles, programs and products. Scott has been with the Intermediary Analytics group since 2009.View Profile