Mutual funds and exchange- traded funds hemorrhaged assets in March, as investorswithdrew some $320 billion from theseproducts, according to the April CerulliEdge U.S. monthly product trends report.
Some asset classes were exempt fromthis trend as the coronavirus tornadoswept across the country. Passively managed equity strategies added $35.8 billion during March, $20.7 billion comingthrough mutual funds and $15.1 billionthrough ETFs.
Investors directed net flows withinpassive equities mainly to U.S. equities.Cerulli said demand for passive U.S.equity likely arose from investors reallocating into high-quality, low-cost equity index-tracing products that offeredmore attractive prices that resulted fromthe severe equity market declines.
The analysis showed that asset managers endured double-digit asset declinesduring March, with mutual funds falling13.6% and ETFs declining 12.4%.
Mutual funds took a historically hardhit, as investors withdrew $335.2 billion,or 2.2% of February month-end assets.Outflows for the January-to-March periodwere only a bit less grim at $291.7 billion.
ETFs got off a bit easier during theMarch selloff. The overall decline in assetswas lessened because investors held steadyon a net basis, adding $9.3 billion in positiveflows into the vehicle during the month.
Fixed-income ETFs struggled in
March, suffering $20.7 billion in net
negative flows. In contrast, alternative
ETFs amassed significant flows for the
year to date, especially relative to the
category’s small size, $46 billion.
Investors added net flows of $684.7billion into money market funds inMarch, leading to a 19% increase in assetsto $4.3 trillion, Cerulli’s analysis found.However, there were different outcomeswithin the three broad Morningstar categories: taxable, tax-free and prime funds.
Taxable money market funds added$824 billion, while tax-free and primeexperienced outflows of $3 billion and $136billion. The discrepancy in flows highlighted investor demand for the safety of gov-ernment-backed securities, Cerulli noted.
Cerulli said in a statement that, somebright spots aside, the performance ofkey liquid alternatives categories in thefirst quarter, as well their long-term performance relative to traditional investments such as stock and bond funds,make them a tough sell to advisors andtheir clients. Numerous categories havesuffered relatively steep declines.
SEC APPROVES NEW ETF LISTING
RULES OF CBOE, NASDAQ
The ability of fund companies to bring
ETFs to market under a new relaxed
rule from the Securities and Exchange
Commission was enhanced this week
by SEC approval of a request from the
Chicago Board Options Exchange to list
such ETFs. The commission previously
approved a similar request from Nasdaq.
“This will accelerate approval ofExchange-Traded Fund shares and series ofETF shares that are permitted to operate inreliance on Rule 6c- 11 under the InvestmentCompany Act of 1940,” according to analysis by Dechert LLP, a global law firm thatworks with financial institutions and otherindustries. The firm expects the NYSE Arcawill obtain similar approval in short order.
Rule 6c- 11 allows asset managers tobring ETFs to market without filingfor exemptive relief for each new fundunder the Investment Company Act of1940 that explains why they are different from mutual funds. They will insteadbe able to bring new ETFs to marketunder a single rule so long as the fundssatisfy conditions set by the SEC that areintended to promote investor protection.
Under the Cboe and Nasdaq rulechanges approved by the SEC, theexchanges, similarly, can list ETFs thatmeet the Rule 6c- 11 requirements without having to first obtain SEC approvalunder another rule, Rule 19b- 4 underthe Securities Exchange Act of 1934.
“These new rules accordingly remove apotential obstacle to listing for many ETFsand further the SEC’s stated goal of harmonizing regulatory requirements applicable to ETFs,” according to Dechert LLP.—Bernice Napach contributed to this report.
Michael S. Fischer can be reached firstname.lastname@example.org.
By Michael S. Fischer
Mutual Fund, ETF Assets Ravaged by
Double-Digit Declines in March: Cerulli
Investors pumped $685 billion into money market funds, bringing assets
to $4.3 trillion.