The fund flow landscape in the United States has been an interesting one to observe in recent years. Particularly in terms of a global comparison of the total net assets of mutual funds. While the global market has experienced continuous inflows peaking in 2021, this trend has been magnified by the U.S. holding roughly ten times the amount of assets compared to other regions. The mutual fund industry in the United States from 2017 to 2021 experienced overall growth with a compound annual growth rate (CAGR) of 15.3 percent. The net new cash flow to mutual funds in the U.S. had been primarily positive over the past 22 years. However, in 2022, the trend has shifted towards outflows with asset allocation to equity, bond, and hybrid funds declining.
Reformations affecting fund flow
While mutual funds and other financial securities had begun experiencing a net outflow by 2022, money market funds (MMFs) had encountered an increasing new fund inflow. As of 2023, MMFs have reached a total fund inflow value of almost 6 trillion U.S. dollars. This inflow is primarily due to the Securities and Exchange Commission (SEC) reforms implemented in 2016. To reduce fund outflow in times of market stress the SEC introduced fees and minimum liquidly requirements and removed redemption restrictions through gates. These new reforms provide investors with more confidence in MMFs naturally resulting in a greater asset inflow rather than increasing the risk of an investor run. An additional factor to the most recent popularity of MMFs has also been the Federal funds interest rate policy, as this directly impacts investment in short-term securities.
Passive investment
The rise of passive investing has been one of the most significant trends in the U.S. fund flow market. The majority of ETFs today follow a passive structure reflecting the appeal of index tracking, with the total net assets under management of U.S. ETFs resting at 6.45 trillion U.S. dollars. While ETFs offer reduced risk and easy portfolio diversification the rate of fund flow is often impacted by the underlying benchmark of the ETF. Fixed-income ETFs have seen a recent increase in fund flow, with the largest YTD outflow being under six billion U.S. dollars. This trend is most likely due to the correlation in recent interest rate lows. However, Alternative ETFs remain high on investor priority with the ProShares Ultra having an inflow of over 395 million U.S. dollars YTD in 2022 alone.
