Insight Investment Funds Report January 2023—Investment Funds: Looking Ahead to Better Times

With the economy transitioning to a higher interest rate environment in 2022, market valuations and sales turned sour for investment funds, negatively impacting most asset classes across the equity and fixed income continuum. Most of the fund sponsors that usually top the sales ranking capped the year in net redemptions. Assets declined during the year, as 2022 marks the fifth time in three decades that investment fund assets contracted—and technically the first for ETFs.

If history is any indication, however, the near future may be more promising than the recent past. Ceteris paribus, the end of interest rate increases by central banks and subsiding inflationary pressures should positively impact investment fund valuations. Sales should follow at some point later.

But the shape of things to come is unlikely to resemble the past. The fast spike in interest rates made deposit products more attractive, putting in motion much of the cash on the sidelines. Major forces, such as shifting advisor practices and client preferences, the continuous rise of self-directed distribution, demographics, regulation and the sheer scale of the business will continue to shape the industry for years to come. The January 2023 Insight feature examines the key underpinnings driving industry trends now and in the future.