The US fund business added 689 unique new mutual funds and ETFs in 2021. And despite the popularity of passively managed funds, 536 of these funds were actively managed. Collectively, these new funds attracted $149.7bn in net inflows for 2021, with passively managed funds attracting $104.4bn and actively managed funds taking in $45.3bn.
Included in this new fund production were a sizable amount of responsible investment funds, which exemplifies the importance of these products in fund management product strategy. Responsible investment funds, which include funds with traditional socially responsible investing strategies, ESG investment strategies, impact investing strategies and the like, accounted for 148 unique new products. Of these, 103 were actively managed, while 45 were passively managed. For the one-year period ended Dec. 31, 2021, new passively managed responsible investment funds attracted $4.6bn, while their actively managed counterparts took in $10.8bn. Those are pretty impressive numbers for new products and another sign that active management is maintaining a bit of an edge as a preferred choice for ESG investing in the US. But is that tide starting to turn?
Flow trends for 2021 saw actively managed responsible investment funds taking in $30.9bn, while their passively managed responsible investment counterparts attracted $45.7bn, despite actively managed responsible investment funds’ assets under management ($277.3bn ) being significantly higher than the passively managed responsible investment fund assets under management ($153.1bn) on Dec. 31, 2021.
Sales and assets for passively and actively managed responsible investment funds
| Active | Passive | |||||
|---|---|---|---|---|---|---|
| Lipper macro groups | Q4 2021 estimated net flows ($M) | One-year estimated net flows ($M) | December total net assets ($M) | Q4 2021 estimated net flows ($M) | One-year estimated net flows ($M) | December total net assets ($M) |
| Domestic equity | 3,072 | 11,117 | 162,815 | 10,178 | 33,410 | 115,874 |
| World equity | 2,640 | 6,498 | 51,619 | 820 | 9,050 | 30,827 |
| Mixed assets | 2,248 | 2,676 | 10,621 | 7 | 62 | 83 |
| Taxable fixed income | 5,189 | 10,963 | 41,126 | 679 | 3,142 | 6,280 |
| Municipal debt | 79 | 331 | 2,098 | – | – | – |
| Long term | 13,228 | 31,587 | 268,278 | 11,684 | 45,665 | 153,064 |
| Money market | 55 | -705 | 9,022 | – | – | – |
| Total | 13,283 | 30,881 | 277,300 | 11,684 | 45,665 | 153,064 |
Source: Refinitiv Lipper, an LSEG Business
Note: Data include all open-end fund types. Passively managed funds include pure index funds and index-based funds.
Diving a bit deeper into our macro classification subgroups for responsible investment funds, we see that estimated net flows into both domestic equity and world equity macro groups favor passively managed products, similar to the broader fund universe, with flows into passively managed responsible investment US diversified equity funds ($28.1bn), sector equity funds ($5.3bn), developed international markets funds ($7.2bn) and emerging markets funds ($1.9bn) eclipsing those into their actively managed responsible investment counterparts ($9.2bn, $1.9bn, $4.9bn and $1.6bn, respectively).
Sales and assets by macro subgroups, passive and active responsible investment funds
| Active | Passive | |||||
|---|---|---|---|---|---|---|
| Lipper macro subgroups | Q4 2021 estimated net flows ($M) | One-year estimated net flows ($M) | December total net assets ($M) | Q4 2021 estimated net flows ($M) | One-year estimated net flows ($M) | December total net assets ($M) |
| US diversified equity | 2,599 | 9,196 | 155,491 | 10,161 | 28,089 | 95,725 |
| Sector equity | 401 | 1,862 | 6,621 | 21 | 5,272 | 20,017 |
| Commodities | – | – | – | – | – | – |
| Alternatives | 72 | 59 | 703 | -5 | 49 | 132 |
| Developed international markets | 2,535 | 4,926 | 40,446 | 2,096 | 7,163 | 18,639 |
| Emerging markets | 105 | 1,573 | 11,173 | -1,276 | 1,888 | 12,189 |
| Mixed asset | 2,248 | 2,676 | 10,621 | 7 | 62 | 83 |
| Taxable fixed income | 5,095 | 10,493 | 39,348 | 635 | 2,972 | 5,876 |
| World taxable fixed income | 94 | 470 | 1,778 | 44 | 171 | 404 |
| Municipal debt | 79 | 331 | 2,098 | – | – | – |
| Money market | 55 | -705 | 9,022 | – | – | – |
| Total | 13,283 | 30,881 | 277,300 | 11,684 | 45,665 | 153,064 |
Source: Refinitiv Lipper, an LSEG Business
Note: Data include all open-end fund types. Passively managed funds include pure index funds and index-based funds.
However, the stickiness of responsible investment fund flows, which we have cited several times before, breaks away from what we are seeing in the overall fund flow universe (which includes both responsible and non-responsible investment funds), where actively managed US domestic equity funds continue to see major net outflows. These funds handed back $212.2bn in 2021, while their passively managed counterparts attracted an eyepopping $343.6bn for the same period, highlighting investors’ overall continued interest in passively managed funds.
Putting a responsible investment funds lens back on, we note that, similar to the broader universe of funds, actively managed responsible investment mixed-assets funds ($2.7bn), taxable fixed income funds ($10.5bn) and municipal debt funds ($331m) outdrew their passively managed counterparts, which took in $62m, $3bn, and $0, respectively, for 2021.
On the responsible investment side of the ledger, investors are still more likely to use actively managed funds. This makes sense. Most of these funds take an active approach to securities selection, by using: negative screening; best-in-class sustainable practice screens that focus on environmental, social and governance practices, policies and performance; and even focused social or environmental outcome practices, often referred to as impact investing. All generally lend themselves to more active management. As ESG fund investing is still relatively nascent and there are differing opinions globally around what constitutes true ESG companies and investing characteristics, active investing will have a window of time where it is a favored approach. However, as the space matures, it’s very possible the tide may turn back to a preference for passive when ESG disclosures and assessments align more closely around global standards.
