Institutional Investors Add Active Allocations to Start 2023

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.  

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.

The full report is available for purchase.