Long-term investment fund assets under management are forecast to rise to $27.3 trillion (all figures in U.S. dollars) by 2025, according to a new report from ISS Market Intelligence.
The report by the research unit of proxy advisory firm Institutional Shareholder Services (ISS) Inc. projects that long-term flows will total $2.7 trillion over the next several years, with assets climbing by $7.2 trillion over that period.
“In the near term, asset managers have good reason for optimism,” said Christopher Davis, head of U.S fund research at ISS Market Intelligence, in a release.
“Our 2021-2025 outlook for long-term funds anticipates flows will rebound spritely from 2020’s depressed levels,” he added.
The report noted that ETFs accounted for almost all of the long-term net flows, which totalled $350 billion, in 2020.
“Redemptions hit mutual funds, especially active ones, hard,” it said.
The report also noted that ESG funds were a bright spot in 2020, generating a record $60 billion in net flows, which was nearly triple their total in 2019 (a record in its own right).
“The pandemic, wildfires, social unrest and political strife of 2020 collectively highlighted the human, environmental and financial risks ESG strategies purport to address,” it said.
Looking ahead, the report also predicted that index funds will claim over half of industry assets by 2025.
“Rumours of the old-fashioned mutual fund’s demise are exaggerated. Mutual funds will remain a powerhouse for years to come, but most of the benefits will accrue to index fund managers,” it said.
Yet, at the same time, ISS saw an opportunity for active managers in the ETF market, estimating that active ETFs will generate more than $700 billion in net sales by 2025.
Additionally, the report noted that past performance is no longer any guarantee of future sales in the fund industry.
“With investor portfolios increasingly powered by asset-allocation solutions like target-date funds and model portfolios, better performance for the asset class often means weaker flows — a reversal of the sales-follows-returns pattern that has driven fund providers’ sales and marketing strategies,” it said.