Equity strategies hit 15-year high


14 May 2024

Money market funds, equity funds and ETFs have kept investors busy in the first quarter, finds Andrew Holt.

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Money market funds, equity funds and ETFs have kept investors busy in the first quarter, finds Andrew Holt.

In a clearly paradoxical trend, money-market funds globally took in $1.1trn (£878bn) in 2023 but reported $46bn (£36.7bn) of outflows in the first quarter of this year, indicating that a more sanguine attitude toward risk has emerged.

On an upbeat assessment, stock market bulls believe trillions of dollars held in these funds will be put to work during 2024 as money-market yields are attractive.

But money markets’ share of long-term assets are moderate, at least on an historical basis. The big trend is arguably how investor allocations to equity strategies stand at a 15-year high.

Investors rebalanced from equity to fixed income during Covid, but equity funds’ share of the global investor portfolios has swelled thanks to last year’s bull market among global mega-caps and strong returns in the first quarter of 2024, according to Morningstar.

In fact, the first quarter’s 54% allocation to equity funds was higher than any quarter since the opening three months of 2009 with assets in equity strategies reaching $29.5trn (£23.5trn), also a record.

But the likelihood of further rebalancing from equity to debt is moderately high, given past investor behaviour, Morningstar said.

There has also been much movement within the exchange-traded funds universe, as actively managed ETFs grew 10% organically in the first quarter, reaching $770bn (£641.5bn) in assets.

The US led the way in assets and flows in the quarter, but as a proportion of ETF assets in local markets, Canada leads the pack. In comparison, passively managed ETFs grew by 2%.

Morningstar said the industry is now dominated by what it calls ‘hyper-scaled beta’ providers. There is little argument with this assessment given the top three alone control 66% of the $12trn (£9.5trn) worth of global ETF assets.

But none of the giants are standing still.

The wave of innovation around non-beta product strategies centres on thematic funds, actively managed funds, strategic beta and cryptocurrency, and the big players as well as the upstarts are enjoying some success.

The organic growth rate is the flows over a period divided by beginning net assets. By this measure, the behemoths continue to grow strongly.

Allocation to Equity Strategies is at a 15-year high

Source: Morningstar


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