In 2023, global open-end and exchange traded funds experienced a modest recovery, garnering an estimated US$66 billion in net flows, reflecting a 0.17% organic growth, according to data.
This followed a challenging year in 2022, marked by substantial outflows amounting to US$536 billion, according to Morningstar’s research. Despite the recovery, the total assets reached US$44 trillion, indicating an increase from the previous year but still below the peak of US$48 trillion recorded in December 2021.
The dynamics of fund flows in 2023 revealed a distinctive pattern, with fixed income being the sole category group that witnessed inflows. Investors were driven by the pursuit of higher interest rates and the need to rebalance surging equity positions, resulting in a substantial US$395 billion inflow to fixed income category funds. This was a noteworthy reversal from the US$477 billion outflows experienced in 2022.
Additionally, money market funds attracted significant attention, seeing a substantial US$1.1 trillion inflow, pushing assets to a record-high of US$7.7 trillion. However, the proportion of money market assets relative to long-term assets remained within normal ranges, challenging the widely-held belief in a substantial amount of “sideline money” in equities.
The year 2023 may be marked as a turning point for fixed-income funds, as passive strategies continued to dominate flows for a second consecutive year, capturing a significant US$361 billion. In contrast, actively managed bond funds displayed a weaker recovery, accumulating only USD 34 billion after experiencing historic outflows of US$747 billion in 2022.
Indexed strategies now constitute a substantial 40% of long-term global assets, totaling US$17.9 trillion, with the US surpassing the 50% mark in passive assets by December.
Notably, actively managed ETFs exhibited a faster growth rate, expanding by 37%, while passive ETFs grew at a more moderate 8%.
Vanguard dominated the passive assets market with a 37% share, outpacing iShares at 15%. Sustainable funds experienced a 2% organic growth, amassing 59 billion in inflows, reaching a total of US$2.9 trillion due to surging equity markets.
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