Growth in mutual fund and ETF assets expected to decline

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Long-term fund assets will grow by 7.4% annually over the next five years, up from 13.1% on average for the five-year period ending this year, according to ISS Market Intelligence forecasts.

Mutual funds and ETFs will add $ 11.7 billion in assets under management, with collective assets reaching $ 39 billion by 2026, the research group estimates.

However, colder markets will be responsible for a slowdown in annual asset growth, predicts ISS Market Intelligence. Capital appreciation has been the main driver of asset growth in the past, accounting for around 70% of the increase in assets over the past five years. But over the next five years, markets will likely only account for 60% of asset growth.

“With weaker markets, more of tomorrow’s growth will come from flows,” said Christopher Davis, head of US funds research at ISS Market Intelligence. “It’s a potential opportunity for managers who have the right distribution and product capabilities, but also a potential danger for managers who have struggled to develop organically. “

This article was previously published by Ignites, a title belonging to the FT group.

Even though more than $ 1 billion has been invested in long-term funds this year, three of the top 10 fund managers have seen net outflows, Davis noted.

In the year to the end of November, investors withdrew $ 29.7 billion net from mutual funds and ETFs from T Rowe Price, $ 13.1 billion from Franklin Templeton and $ 13.9 billion dollars from Dimensional Fund Advisors, according to Morningstar Direct.

“Without the tonic of rapidly growing markets, managers will rely more on their sales and distribution capabilities to drive growth,” the report notes.

The ISS Market Intelligence report is based on the performance and volatility forecasts of 25 banks, asset managers, consultants and family offices. The report is intended to be used as a long-term strategic planning tool for asset managers, Davis said.

Analysis by another research group yielded similar results.

Casey Quirk’s capital market and flow projections are slightly different, but similar “directional”, said Tyler Cloherty, senior director of the Deloitte unit.

ETFs are expected to continue their rapid growth rate, rising from 25% of long-term assets to around 33% in 2026, predicts ISS Market Intelligence. Commission-free trading and the increased use of online brokerage more generally, as well as product innovation, will give the product a boost.

“After a slow initial rise, active equity ETFs will gain traction, contributing $ 325 billion to $ 590 billion to aggregate active ETF flows over five years,” the report says.

Long-term mutual funds will attract about 25 percent of industry flows over the next five years, according to ISS Market Intelligence. They will earn around $ 1.5 billion through 2026, and active bond funds will likely capture most of these new assets.

“The aging population will remain a boon for bond fund sales,” the report notes, as retirees seek more income and less risk. Bond funds and ETFs will bring in around $ 3 billion – more than half – in net sales through 2026, according to the ISS report. This is almost double the amount these products have raised in the previous five years.

Index products will continue to grow at a rapid pace, but primarily through the ETF chassis, the report says.

Index funds “will likely cross the 50% threshold in 2024,” from 44% in mid-2021, and hold 53% market share by 2027, predicts ISS Market Intelligence.

* Ignites is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignites.com.

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