Collective investment trusts continue their climb, as CIT assets experienced double-digit growth for first time since 2012.
The reason, according to global research and consulting firm Cerulli Associates, is “that many defined benefit and defined contribution plans are increasingly using CITs in their investment portfolios. This shift in investor preferences has been traced to fee sensitivity, the threat of litigation, and increased awareness of CITs as an investment vehicle.”
“As of 2016, CIT assets were almost $2.8 trillion, which is a major increase from 2011, when assets had yet to cross the $2 trillion mark,” Christopher Mason, a senior analyst at Cerulli, said in a statement. “This increase in assets reflects an 11.6 percent increase from 2015 to 2016, which is the first year of double-digit year-over-year growth.”
The primary source of growth can be explained by the fact that CITs often are priced lower as compared to mutual funds of similar strategies, he added.
“However, when examining the driving forces behind the demand more closely, we see that the threat of litigation is putting pressure on plan sponsors to ensure that related fees paid reflect the best interest of the plan participants.”
Increasing awareness and education of CITs is another major driving force behind CIT adoption. The Cerulli survey found that 81 percent of CIT managers perceive consultants to be very knowledgeable about CITs, with the remaining 19 percent indicating that they are somewhat knowledgeable
“These findings stand to reason that as consultants become more educated about CITs, they are more apt to use them in their clients’ portfolios.”
On the other hand, the majority of managers surveyed believe financial advisors are somewhat knowledgeable regarding CITs, while only 14 percent believe them to be very knowledgeable Mason concluded.
“Financial advisors’ familiarity with mutual funds, along with marginal differences in cost compared to CITs, cause them to be more apt to turn to mutual funds.”
Cerulli maintains that as financial advisors become more educated about CITs, the more likely they are to use them in client portfolios.