Anew report from Cerulli Associates painted a diver- gent picture of mutual funds
and ETFs. While the number of mutual
funds is on track to experience its biggest decline in four years, the number of
ETFs is poised for just the opposite.
The Cerulli report shows that a net
107 mutual funds disappeared this year
through the second quarter as the number of closed or merged funds exceeded
the number of new ones brought to
market. That’s far more than the net
number of mutual funds that vanished
in all of 2016, 2017 and 2018, which
ranged from 74 to 97.
In contrast, the number of ETFs rose
to its highest level since at least 2014. By
the end of the second quarter, there were
7,732 mutual funds, the lowest number
since at least 2014, and 2,122 ETFs.
Actively managed funds accounted for
almost all the net closures of mutual funds.
More than 100 mutual funds opened during the first two quarters of the year and
almost all were passive index funds.
Cerulli attributes the “
rationalization” of mutual funds to the commoditi-zation of the product and to distributors
trimming their product platforms. Its
survey of asset manager product executives revealed that 33% rate product
rationalization a high priority and 58%
consider it a moderate priority.
Among the top factors that asset managers consider before closing a fund:
assets under management — they want
to see “a clear path to getting to the $100
million to $200 million range” — performance and demand from key distribution partners, according to Cerulli.
FUND ASSET FLOWS: ACTIVE
Asset flows into actively managed mutual funds were also a net negative. Year-to-date through September they were
negative $65 billion, while flows into
passive mutual funds rose $148 billion.
ETF flows were a different story.
Actively managed ETFs saw inflows of
$16.8 billion year to date through the
third quarter, while passive ETFs had
inflows more than 10 times that large:
“The market share shift toward passive is indicative of investors’ desire
to use passive investment to help keep
costs low, while still using active where
they feel it can provide alpha in less
efficient areas of the market,” according
to the Cerulli report, referring to both
mutual fund and ETF net inflows.
Indeed, the Fidelity 500 Index fund,
which has a net expense ratio of 1. 5 basis
points, led all other mutual funds in net
inflows year to date through the third
quarter, up $22 billion, topping even
flows into Vanguard’s 500 Index Fund,
which charges 4 basis points.
The No. 2 fund for inflows was the
Fidelity Series Total Market Index Fund,
which also charges 1. 5 basis points,
followed by the Vanguard Total Stock
Market Index Funds, whose Admiral
shares, requiring a $3,000 minimum,
cost four basis points.
In addition to a preference for passive
assets, mutual funds and ETFs share
another key characteristic: concentration of assets.
The top 10 mutual managers accounted for just over 64% of market share,
while the top 10 ETF sponsors had just
over 96% of market share.
Although ETFs have been growing
steadily in number on a net basis, their
assets are far fewer — $4 trillion vs. $15.5
trillion in mutual funds.
Several recent developments could
help narrow that gap: the elimination of
commissions for ETF trades instituted
by Schwab, Fidelity, TD Ameritrade,
E-Trade and Ally Financial; the SEC’s
new rule that eliminated the need for
fund sponsors to seek exemptive relief
before bringing new ETFs to market;
and the SEC’s approval of a strategy,
called ActiveShares, that allows asset
managers to build and market nontransparent ETFs (those ETFs are not
privy to the exemptive relief change).
An earlier Cerulli survey of “product
heads” from 35 asset managers found
that 46% indicated they would build
nontransparent ETF capabilities within a
year if the SEC approved the ActiveShares
proposal from Precidian Investments.
ThinkAdvisor.com Senior Writer Bernice
Napach can be reached at firstname.lastname@example.org.
By Bernice Napach
ETFs, Mutual Funds Moving in
The number of mutual funds is on track for its biggest decline
in four years, Cerulli reports.