After stockpiling cash in 2008, the global investment community recovered its thirst for investing –- albeit with a tempered taste for risk –- in 2009, sending global mutual fund inflows surging (money markets aside) and setting the stage for a continued recovery throughout 2010, reports Cerulli Associates' January 2010 Global Edge edition.

Businesses worldwide have revived their "back to basics" mentality the report determines, citing the turnaround in global long-term mutual fund net new inflows by geographic region in the second and third quarters of 2009. Close to the top of the pack, the United States experienced a significant turnaround during this period, posting a respectable gain of $136 billion in inflows by the end of Q3, after seeing net outflows of $175 billion in 2008. Europe, which had a much steeper ditch to climb out of after net outflows in 2008 topped $539 billion, ended Q3 of 2009 with net inflows of $134 billion.

Still, Cerulli doesn't expect to see the United States leading the charge when it comes to recovery this year.

“Europe's fund industry was the first into recovery mode, hence the expectation that it will continue to lead the charge in 2010 even as a clutch of its economies are late to exit the recession,” the report states.

Aside from an upswing in inflows during 2009, the report also examines several trends and offers predictions for the months ahead. ETFs, which are expected to continue to “chip away” at the dominance of mutual funds and other products, will continue to attract converts as US investors maintain their penchant for lower fee and lower volatility products. Custom target-date-funds, such as CITs, and guaranteed income products, which will be in high demand as baby boomers retire en masse, are also named as top-order items on the menu for 2010.

“In U.S. Retail asset management, Cerulli expects to see opportunities mainly for new managers or those with highly ranked products... managers will be evaluating the bang for the buck they are getting from their sales forces and seeking out the most influential decision-makers in a changed distribution landscape.”

From a portfolio construction perspective, the report suggests that the financial crisis facilitated a move away from a “style-box” approach towards a “module,” or component portfolio construction tactic, as advisors aim to create customized asset allocations that will give them greater risk exposure controls and improve efficiency.

Yet despite the fact that the recovery witnessed in the second half of 2009 was driven, at least in part, by aggressive cost-cutting measures, streamlining efforts, and greater risk control, Cerulli predicts that the increasingly positive sentiment among investors – and managers – might not spell all good news for certain risk-happy segments of the population.

“Cerulli believes that it is the middle market, those with a net worth between US$250,000 and US$1 million, and mass affluent investors, those with a net worth between US$1 million and US$5 million, who are most likely to forget the lessons of the market action of 2008.”

Which begs the question, will investors and managers alike allow their wish to cast-off the memory of 2008 for good trump the lessons, and rewards, of the more conservative, risk-savvy investing they practiced in the second half of 2009? 

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