On an annual basis, billions of dollars move through the United States economy via fund investing, influencing financial markets and individual wealth, but what causes this movement, and why is it important?
The fund flow landscape in the United States has been an interesting one to observe in recent years. Particularly in terms of a
. While the global market has experienced continuous inflows, peaking in 2021, this trend has been magnified by the U.S. holding roughly ten times the amount of assets compared to other regions. The net assets of mutual funds in the United States from 2017 to 2023 experienced positive movement, with a total net increase of almost 12 trillion U.S. dollars within the six-year period.
has been primarily positive over the past 22 years. Overlooking a historically large outflow in 2022 following a
. However, this did not form a trend as 2023, saw positive net new cashflow.
Reformations affecting fund flow
Unlike many other fund types that had begun experiencing a net outflow by 2022, money market funds (MMFs) encountered an increased level in new fund inflow due to a change in policy conditions.
As of 2024, MMFs had reached a total fund inflow value of almost seven trillion U.S. dollars. This inflow is primarily due to the Securities and Exchange Commission (SEC) reforms implemented in 2016. To reduce fund outflow in times of market stress, the SEC introduced fees and minimum liquidly requirements and
removed redemption restrictions through gates. These new reforms provide investors with more confidence in MMFs, naturally resulting in a greater asset inflow rather than increasing the risk of an investor run. An additional factor to the most recent popularity of MMFs has also been the
Federal fund's interest rate policy, as this directly impacts investment in short-term securities.
Passive investment
Investing in ETFs is one of the most popular forms of fund investing in the U.S. with
total net assets under management having accumulated to 8.09 trillion U.S. dollars. A large majority of these ETFs today follow a passive structure, reflecting the appeal of index tracking to investors. While ETFs offer reduced risk and easy portfolio diversification, the rate of fund flow is also frequently impacted by the underlying benchmark of the ETF. As of June 2024, Grayscale Bitcoin Trust ETF had among the
largest levels of ETF outflows. Designed to track the CoinDesk Bitcoin Price Index, the ETF saw outflows in excess of 18 billion U.S. dollars year-to-date. In comparison, the iShares Bitcoin Trust
ETF tracking the CME CF Bitcoin New York Reference Rate saw a net inflow of funds. While these indexes are comparable, differences are notable, including transparency of reference rate methodology and overall performance. While the drivers of asset flow of funds may be difficult to pinpoint having been subject to influence by many variations, its movement is primarily representative of the level of money flowing in and out of investment funds.
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