February shaped up to be a gainful month as mutual funds saw net inflows for the first time in over two years, finds the latest U.S. Monthly Product Trends report from the Cerulli Edge.
According to the findings, mutual funds had an impressive uptick of $13 billion to advance assets to over $19 trillion for the first time since November 2021. This marked a total asset growth of $634 billion, or 3.4%, in February.
Despite outflows of $20 billion, U.S. equity mutual funds coursed 5.3% during the month, while taxable bond mutual funds witnessed net inflows of $36 billion for a total asset growth of $2 billion, reports Cerulli.
Meanwhile, exchange-traded fund (ETF) assets reached $337 billion as it saw $46 billion in flows during February. U.S. equity, international equity, and sector equity all had a strong month, Cerulli reports, in large part due to $45 billions of net flows.
Ultimately, the research adds that it was alternative ETFs that forged ahead as assets surged $34 billion on nearly $6 billion of net inflows.
Cerulli credits the Federal Reserve’s effort to increase interest rates in 2022 and 2023 for the renewed demand among institutional investors. While past eVestment data showed that fixed-income strategies experienced positive flows during each quarter in 2023, most of these flows were into cash management or passively managed strategies. In February, passively managed strategies continued to climb, shows Cerulli, outperforming actively managed funds by $84 billion.
Due to the resumed interest, the Boston, MA-based market researcher expects most institutional investors to add to their fixed-income allocations over the next 24 months.
“The increase in interest rates tempered demand for private credit strategies, as investors became concerned with potential default risk,” Cerulli writes in its report. “However, as interest rates are expected to fall, investors are likely to allocate more heavily to the asset class, posing a challenge to traditional fixed-income managers.”
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
