Move to Fixed Income Driving Product Developments

The January 2013 issue of “The Cerulli Edge: U.S. Monthly Product Trends,” reports economic and capital market uncertainty has shaped both retail and institutional investors’ need for portfolio solutions that can boost returns, subdue volatility and address liabilities. Efforts to tame the impact of market volatility on investors’ portfolios are shaping managers’ approaches to product innovation.   

When asked about attributes that are currently resonating with financial advisers, third-party-distribution-focused managers ranked alternative investments’ ability to reduce volatility and provide diversification in portfolios as most important (4.6 on a 5.0 scale), followed by risk reduction (rated 3.7 out of 5.0).     

Demand for income was among the main drivers of product innovation in 2012, and roughly one-fourth (24%) of asset managers marked taxable bond for new product development within the next 12 months. Of the top-10 flow-gathering Morningstar categories in 2012, intermediate-term bonds reeled in the most net flows with $112.3 billion, and only two were not fixed-income-focused-diversified emerging markets and conservative allocation.  

The report notes that mutual fund assets increased 16.3% in 2012 and garnered almost triple their 2011 flows ($97.8 billion) with $269 billion. Taxable bond funds saw flows of $266 billion, and municipal bond and balanced asset classes followed with $50.1 billion and $21.3 billion, respectively.   

Exchange-traded fund (ETF) assets grew 27.4% as flows totaled $187 billion. U.S. stock ETFs posted the best flows among the asset classes with $54.8 billion.