In total, investors pulled approximately US$320 billion from mutual funds and exchange-traded funds (ETFs) during March, although there are asset classes such as passive US equity (US$40.9 billion) that were exempt from the general trend.

The April issue of The Cerulli Edge - US Monthly Product Trends reflects on the tumultuous first quarter of 2020, as record-setting mutual fund and money market fund monthly net flow figures highlight investor fear and uncertainty.

The demand for passive US equity likely stems from investors reallocating into high-quality, low-cost equity index-tracking products to take advantage of the more attractive prices that resulted from the severe equity market declines.

The selloff was felt by asset managers as they endured double-digit asset declines, with mutual funds falling 13.6% and ETFs declining 12.4% during the month.

The issues for mutual fund managers were compounded by the fact that net flows moving out of the vehicle totalled an astounding US$335.2 billion, or 2.2% of February month-end assets.

The overall decline in ETF assets was lessened by the fact that investors held steady on a net basis, adding US$9.3 billion in positive flows into the vehicle during March.

Fixed-income ETFs struggled in March, suffering US$20.7 billion in net negative flows. However, alternative ETFs gathered significant flows YTD, especially relative to the small size of the category (US$46 billion).

Investors also piled into money market funds, adding net flows of US$684.7 billion, leading to a 19% increase in assets to US$4.3 trillion.

However, there were different outcomes within the three broad Morningstar categories: taxable, tax-free, and prime funds.

Taxable money market funds added US$823.5 billion, while tax-free and prime bled US$3 billion and US$135.9 billion, respectively. The discrepancy in flows highlights investor demand for safety of government-backed securities.

Cerulli believes that while there are certainly bright spots, the performance of key liquid alternatives categories in 1Q 2020 as well their long-term performance relative to traditional investments such as stock and bond funds make them a tough pitch to advisors and their clients.

Many of the categories have faced relatively steep declines; although, some liquid alternative categories have provided strong performance as markets declined.

One bright spot has been managed futures funds, which, after a long period of poor returns, were flat in 1Q 2020. Managed futures exhibited the lowest five-year correlation to equity markets.