Passive funds outpaced active investments among mutual funds and exchange-traded fund (ETF) assets in December 2023, finds the latest monthly product trends report from Cerulli Associates.
According to the findings, ETF assets grew $439 billion in December, with $128 billion attributed to net inflows. Passively managed ETF funds outperformed actively managed funds by $100 billion in this category, even though actively managed funds saw a higher organic growth rate of 2.9% vs. 1.6%, respectively.
For 2023, total ETF assets grew 24.5% and saw a 10.6% growth in the second half of the year.
On the mutual fund side, passively managed mutual funds offset $4.1 billion of the $74.7 billion of outflows from actively managed mutual funds during December.
Mutual funds grew by $670 billion during the month of December due to “strong market performance,” but shed $70.6 billion of assets caused by flows, according to Cerulli.
The findings come as more asset managers express interest in launching active ETFs, as these funds could offer greater returns while having lower expense ratios than mutual funds but still higher than passively managed ETFs.
“While this is a natural step for many managers, the use of active exposures within the ETF structure, known for providing low-cost exposures advisors build themselves, still is in an early stage. Managers should offer well-differentiated active products at a lower cost,” Cerulli wrote in its report.
Still, with fixed-income exposures providing downside protection to investors while achieving its income objective, Cerulli notes that alternative investment managers may have a tough time selling active funds in the current market.
The market intelligence firm recommends these managers focus on the practice management benefits of using alternative investments when speaking with clients. For example, as $6.1 trillion continues to sit in the actively managed money market funds and continues to gather assets, Cerulli says it believes the exposures will be attractive to advisors as long as higher rates exist.
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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.