Institutional Investors Add Active Allocations to Start 2023

Asset flows data for early this year shows institutional investors bucking 2022 trends. 

Institutional investors expect to increase allocations to active investment strategies, new Cerulli Associates research analyzing mutual fund and exchange-traded product trends in January shows. 

While mutual funds experienced $1.9 billion of overall outflows to start 2023, some asset classes have gathered positive net flows to start the year, data shows.  

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Taxable bond mutual funds added more than $15 billion of inflows during January, and municipal bond mutual funds added $7.7 billion during the month, bucking the 2022 trend in which outflows amounted to $148.7 billion, according to the February 2023 report, The Cerulli Edge—U.S. Monthly Product Trends, Cerulli announced in a press release. 

“The gap between active and passively managed funds hit new lows in December 2022; however, [the] Cerulli survey [shows], most institutional investors still want a majority of their portfolios to be actively managed,” the release stated. “A noteworthy number of institutional investors indicate increasing their allocations to active strategies in equities (28%) and fixed income (20%).” 

Among institutional investors expecting to increase the use of active equity strategies, 32% expect to expand their allocations to U.S. equity, Cerulli found.

Although mutual funds closed 2022 on a “sour note,”—having dropped 4.5% in December—they have so far reversed course in 2023, with assets climbing 5.8% to $17.2 trillion, the release added.

In January, exchange-traded funds climbed 6.6%, ending the month with $6.9 trillion of total assets, data showed.

“Net [ETF] flows during January continue to be steady, coming in at $44.3 billion, slightly below the $52.6 billion monthly average for the preceding five months,” the release stated.

Cerulli Associates’ data for institutional investors’ expected allocations to equity and fixed income were based on a survey that was administrated in the second quarter of 2022, the report noted.

Comprising 17.7% of total ETF assets, taxable bond flows accounted for 28% or $22.6 billion of all ETF flows in January.

“The success can be largely attributed to Treasury bond ETFs,” the release stated.

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