Asset growth in fund products is still going strong, but investors are taking a greater interest in exchange traded funds, compared to traditional mutual fund investments.
In the U.S., the fund industry gathered $434 billion over 2012 as open-end funds regained their pre-crisis levels and ETFs saw record breaking inflows.
Looking at the fund flows, Morningstar found two dominant themes.
“The quest for fixed income and apparent permanent preference for less expensive funds — typically exemplified by the movement of assets to passive products — have transformed the economics of the industry,” Morningstar said.
Passive funds now make up 26% of total open-end and ETF assets, compared to 12% a decade ago.
The analysts attribute the growth in assets to global central bank actions, specifically low interest rates that drove investors to alternative income and riskier assets.
Asset categories that drew the largest inflows over 2012 include U.S. fixed income, high yield fixed income, other fixed income, emerging markets fixed income and U.S. municipal bond fixed income. In contrast, U.S. equities and other global equities saw the largest outflows.
“The search for yield pushed investors into high-yield bonds and emerging-markets bonds, categories traditionally seen as riskier,” Morningstar said. “Both high-yield and emerging-markets bonds saw record inflows.”
Investors favored Vanguard, PIMCO and iShares ETF products, which accounted for 61% of net flows over 2012. Vanguard added $1.8 billion, PIMCO saw $573 million in inflows and iShares added $556 million.
For more information on ETF asset flows, visit our ETF performance reports category.
Max Chen contributed to this article.