Asset Management Trends: 7 Key Ways the Industry is Evolving in 2024

The asset management industry is undergoing significant changes, driven by evolving investor preferences, market dynamics, and regulatory developments. So how can your firm navigate the shifting landscape? By understanding the latest asset management trends, it can be easier to prepare for the future.

Here are seven crucial industry trends—and how asset managers can take action.

Consolidation isn't a new trend in the industry. Still, one major challenge it creates is the continuous impact on fees. Investors are becoming increasingly fee-conscious, demanding more value for their money. This trend in asset management is driven by the rise of low-cost investment options like index funds and exchange-traded funds, which have put significant pressure on traditional mutual fund fee structures.

What can asset managers do? While asset managers are responding by cutting fees, they need to find new ways to maintain profitability through scale and innovative product offerings. To gain a competitive edge, it’s important to consider how to leverage the latest data analytics, improve client experience, and showcase the unique value of your funds with holistic asset management marketing solutions.

Traditional mutual funds, once the bedrock of many investment portfolios, are now facing stiff competition from more flexible and cost-efficient investment vehicles. This shift reflects broader changes in investor behavior and market dynamics that are contributing to asset management trends at-large.

With mutual funds losing market share, here’s what to know about the funds that are taking their place.

Index funds have become essential components of modern investment strategies. Over the past decade, they’ve captured a substantial portion of investor assets due to their low costs and straightforward approach.

Our data reveals that index mutual funds and ETFs continue to attract significant inflows, emphasizing passive investing as a growing trend in asset management. Investors are increasingly drawn to the lower fees and transparency of index funds, which often outperform their actively managed counterparts over the long term.

The significant growth of ETF market share has become one of the more well-known asset management trends. Net flows for ETFs have exceeded those of mutual funds since 2021 and the gap continues to grow. In addition, ETF market share has grown from 13% to 30% over the past 10 years—alone. And ETFs have already raked in more than $195 billion for the first quarter of 2024 alone.

Collective Investment Trusts (CITs) are gaining traction, particularly within the retirement plan market. Offering lower administrative costs and greater customization compared to mutual funds, CITs are appealing to plan sponsors aiming to optimize costs and enhance participant performance.

According to Morningstar research, target-date strategies amounted to $150 billion in 2023—with CITs leading the way and absorbing 67% of the year’s net inflows. That’s not all: CITs now represent 49% of the market and are on pace to overtake mutual funds as the most popular target-date vehicle in 2024. 

What can asset managers do? With the rise of more flexible investment vehicles, asset managers need to diversify their product portfolios to include those in-demand options. Plus, offering a range of products that cater to different investment strategies and risk appetites may attract a broader client base. Understanding fund flows can also help asset managers see a wide-angle view of how investors behave, reveal patterns that reflect investor sentiment, and contextualize emerging trends.

While passive investing has dominated headlines, active management isn’t obsolete. Instead, the investment strategy is evolving to meet new market realities and investor demands.

Take a closer look at how active and strategic beta ETFs are climbing the ranks among the latest asset management trends.

Active ETFs represent a hybrid approach, merging the benefits of active management with the structural advantages of ETFs. These funds are gaining ground due to several factors:

• The US Securities and Exchange Commission (SEC) passed the “ETF Rule” in 2019, streamlining the ETF listing process and giving portfolio managers more flexibility when creating and redeeming ETF shares.

• Investors and their advisors have increasingly sought out low-cost funds.

• Portfolio managers have accepted greater transparency into their fund holdings, which investors have preferred.

• Traditional mutual fund providers began to convert existing mutual funds into ETFs to capitalize on the newfound investor demand.

The growing popularity of active ETFs is a clear trend in asset management: Since 2019, organic growth for the market has consistently exceeded 20% per year—pushing total market share in the ETF industry to 7% at the end of March 2024.

Strategic beta ETFs, also known as smart beta, are designed to bridge the gap between active and passive investing by targeting specific investment factors such as value, momentum, or low volatility.

These ETFs aim to enhance returns and manage risks more effectively than traditional market-cap-weighted indices. The increasing popularity of strategic beta ETFs reflects an investor appetite for innovative approaches that balance performance and risk management.

What can asset managers do? It’s critical to prioritize transparency in operations and fee structures. Educating clients about the various products and strategies available—along with their potential risks and returns—can build trust and retain loyalty. Consider how to do so in an engaging and differentiated manner, such as creating interactive content on your digital properties and social media.

The fixed-income landscape has transformed significantly with rising interest rates. For the first time in years, risk-free returns from US Treasury bonds and other high-quality fixed-income securities are substantial enough to attract investor attention.

This resurgence is prompting a reassessment of portfolios, with increased allocations to bonds for stability and predictable income. The appeal of risk-free returns could lead to a rebalancing away from riskier assets, impacting broader market dynamics.

What can asset managers do? Consider tailoring your offerings to include enhanced risk management solutions. Products that provide stability, such as fixed-income securities and options-based strategies, should be integrated into portfolios to appeal to risk-averse investors.

The global market for thematic funds has expanded rapidly in recent years. Funds focusing on specific themes such as technology, clean energy, or healthcare have seen significant inflows during periods of hype. However, these funds can be highly sensitive to market cycles and investor sentiment.

Research shows that while thematic funds can deliver strong performance in the short term, they often face rapid outflows when trends shift or performance falters. Yet thematic funds may be here to stay—muted net outflows, a strong pipeline of new fund launches, and limited closures hint that the market isn’t going anywhere.

What can asset managers do? Offering innovative thematic funds that align with emerging trends can capture investor interest during peak periods. Still, investors should approach thematic funds with caution, integrating them into a broader, diversified strategy.

The once-booming demand for sustainable or ESG funds appears to be tapering off despite improved performance in 2023. In fact, sustainable funds experienced continued growth with assets reaching $323 billion by the end of last year. However, concerns about greenwashing, inconsistent performance, and regulatory challenges are making investors more selective.

While there’s continued interest in sustainable investing, the slowing growth rate signals a more measured approach by investors.

What can asset managers do? Firms must focus on developing robust, transparent, and well-researched sustainable products that stand up to scrutiny and meet regulatory standards.

Asset managers can also use the Morningstar Sustainability Rating to screen, sort, and analyze opportunities—more than 300 sustainable funds earn our highest ratings under the system. Whether or not investors are interested in sustainable funds, invest in the data and user interface to make it easy for investors to filter through your offerings and find a fund that meets their preferences.

Options-based strategies are gaining momentum, driven by their potential to enhance returns and manage risks. These strategies—which include covered calls and protective puts—offer flexibility and income generation potential, making them attractive in various market conditions.

What can asset managers do? Be agile. In other words, asset managers need to adapt to changes quickly, whether by converting traditional funds into ETFs or by introducing new active strategies that meet emerging market needs.

As 2024 continues to unfold, asset management firms that move forward with agility and foresight will be best positioned to thrive. By embracing innovation and understanding industry trends, you can drive future growth and better support your clients.

Deliver quality offerings with Morningstar Direct. The comprehensive platform gives asset managers the much-needed tools to construct diversified portfolios, analyze asset management trends with the latest fund flow data, and build sustainable products that line up with client values—all backed by our trusted data.

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