Call it the calm before the storm. Cerulli recently analyzed volatility’s “internal divergence effect on emerging market funds.”
They didn’t like what they found.
According to the Boston-based research firm, after an extended period of relatively low volatility, global market volatility spiked in August.
Assets growth in managed volatility strategies such as risk parity have benefited, though it is too early to know whether the category will be a long-term beneficiary of the “risk-mitigation” trade.
Discussions with ETF sponsors lead Cerulli to believe the heightened level of concern about bond ETF liquidity is not needed. Sponsors point out that ETFs have greater liquidity than mutual funds, and can actually be used to offset bond market illiquidity. Overall, sponsors are still confident there is liquidity in the ETF space when it comes to bonds. While there may be instances of short-term differences in ETFs’ price and underlying NAV, it should not impact longer-term investors.
Outflows from mutual funds accelerated in August, with investors pulling out more than $32 billion. Taxable bond mutual funds finished with the most outflows of any asset class in August, losing $23.6 billion. ETFs also had a difficult August, with assets declining by 5.3% to end the month slightly above $2 trillion. Flows into the vehicle fared relatively better than mutual funds, with investors moving $2.4 billion in during the month.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
