Strong equity market performance and the first positive month of net inflows since 2021 made February a strong month for mutual funds, according to Cerulli Associates. But long-term secular trends, including the increased use of separately-managed accounts and ETFs, mean the performance was more likely an aberration than a signal that the market’s use of mutual funds is shifting.
For the month, mutual funds experienced net inflows of $13 billion, according to Cerrulli, with growth coming from bond funds. There were net outflows of $20 billion from U.S. equity mutual funds during the month, compared with $36 billion in net inflows on taxable bond mutual funds.
Other sectors that posted net inflows included municipal bond, commodity and international equity mutual funds while alternative, sector equity and allocation mutual funds posted net outflows.
Among sponsors, Fidelity led the way with $24 billion in inflows. American Funds saw the greatest outflows, with $5 billion exiting its funds during the month.
“Over the past 10 years or, we’ve started to see growth and preference for more diverse options when it comes to consuming investment strategies, whether it’s more ETFs, more SMAs or more CIT use,” said Brendan Powers, director, product development, with Cerulli. “Themes haven’t really changed. It’s about costs, tax efficiency and personalization, in the case of retail SMAs. And so, we’ve seen mutual funds post net negative flows for quite some time as investors use these other vehicles.”
What drove the temporary reversal in February was the demand for bond strategies.
“There have been positive net flows into bonds for the last couple of months," Powers said. "The increased flows to bonds and decreased outflows for equities are likely what got us there.”
The nearly $20 billion in outflows for the month compared with $29 billion in January and $37.5 billion in December.