Strong stock 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 longer-term secular trends, including increased use of separately managed accounts and ETFs, mean the performance was more of an aberration than a signal that the market's use of mutual funds is changing.
For the month, mutual funds saw net inflows of $13 billion, according to Cerrulli, with the increase coming from bond funds. There were $20 billion in net outflows from US equity mutual funds during the month, compared with $36 billion in net inflows to taxable bond mutual funds.
Other sectors that saw net inflows included municipal bond, commodity and international equity mutual funds, while alternative, sector equity and allocation mutual funds saw net outflows.
Among sponsors, Fidelity led the way with $24 billion in inflows. US funds saw the largest outflows, with $5 billion leaving their funds during the month.
“Over the last 10 years or so, we've started to see growth and preference for more diverse options when it comes to investment consumption strategies, whether it's more ETFs, more SMAs or more CIT use,” said Brendan Powers, director of product development. , with Cerulli. “The topics haven't really changed. It is about costs, tax efficiency and customization, in the case of retail SMAs. And so, we've seen mutual funds post negative net flows for quite some time as investors use these other vehicles.”
What drove the temporary reversal in February was demand for bond strategies.
“There have been net positive flows in bonds for the past two months,” Powers said. “Increased flows into bonds and reduced outflows for equities likely got us there.”
About $20 billion in outflows for the month compared to $29 billion in January and $37.5 billion in December.