[6/3/13] The ongoing rally in the U.S. equity markets (with the S&P 500 TR Index up 16.7% since the start of the year) has done nothing to persuade investors to put more capital into actively managed U.S. equity funds, according to the most recent fund flow data provided by Morningstar Direct. Much as we've seen the past five years, the majority of the capital that has been going into equities is being directed at passively managed products--index funds and exchange-traded funds--which have become the default option for investors looking to gain exposure to equities.
Even as the U.S. equity markets gained more ground in the second quarter
(with the S&P 500 TR Index up more than 5% since the end of March),
investors have reverted to shunning actively managed U.S. equity funds,
with January just a blip in what has been a six-year trend of outflows
from the category. Flows have been positive for actively managed U.S.
equity funds in just 13 out of 72 months, with more than half of those
positive flow periods occurring during the first two months of the
calendar year. This means that absent the portfolio rebalancing and
retirement funding that typically takes place in the first quarter of
any given year, the flow picture would be even more dire for managers of
actively managed U.S. stock funds.
[2/4/13] At close to $130 billion, 2012 went down as another record year of outflows from actively managed U.S. stock funds, surpassing the $108
billion that flowed out of these funds during 2008 (according to data
provided by Morningstar Direct). The results were less dire when
excluding the impact of American Funds, which accounted for one third of
the total outflows. That said, outflows are now coming from a much
wider array of managers overall, with American Funds accounting for more
than 40% of total outflows during both 2010 and 2011.
It also should be noted that December was the 22nd straight month of
outflows from actively managed U.S. stock funds, with the segment seeing
positive flows on only 12 occasions during the past five years:
February 2008, April 2008, May 2008, August 2008, January 2009, April
2009, May 2009, June 2009, January 2010, April 2010, January 2011, and
While actively managed U.S. stock funds stayed in net redemption mode
last year, index funds and ETFs posted their best annual flows since the
financial crisis. The biggest winner on the index side of the business
continues to be Vanguard Total Stock Market Index, which until the end
of last year tracked the MSCI U.S. Broad Market Index and accounted for
more than half of the $24 billion that flowed into U.S. stock index
funds during 2012.
Even after excluding the impact of net redemptions at American Funds,
flows for actively managed international stock funds remained in
negative territory during the latter half of 2012. Adjusted flows for
the full year looked much better, though, with the more than $12 billion
that flowed into the category during April accounting for the lion's
share of the $13 billion in inflows that were recorded last year.
Much as we had anticipated, flows into taxable bond funds tapered off
enough during November and December to keep 2012 from beating the record
level of inflows that was recorded for the category during 2009. Flows
into actively managed taxable bond funds of around $239 billion were
about $17 billion shy of 2009 levels, while index fund inflows were
about $9 billion lower than they were four years ago. Flows into taxable
bond ETFs, though, were much stronger last year, with the more than $48
billion that flowed into the category not only $10 billion higher than
2009 levels but $5 billion higher than the record inflows of $43 billion
Although 2012 was not a record year for taxable bond inflows,
the fact that more than $314 billion flowed into the category last year
continues to astound us, given that taxable bond yields remain at
extremely low levels and the stock market (as exemplified by the S&P
500 TR Index) was up 16% during 2012. Add flows into tax-exempt
fixed-income funds, and total inflows for bond funds overall were $368
billion last year (below the record level of $406 billion that flowed in
during 2009), which compares with just over $45 billion in inflows for
equities--U.S., sector, and international stock funds combined--during
2012, which is on par with 2009 results.
At this point of the cycle, it looks to us as if investors continue
to be lured more by the notion of capital preservation than the
potential for capital appreciation.
[12/28/12] While the passing of the elections last month eliminated one of the
biggest uncertainties hanging over the markets, it was quickly replaced
with concerns about the impending fiscal cliff and the impact that any
negotiated deal (or lack of a deal) would have on not only the markets,
but also tax rates. Even with all of the uncertainty we've seen in the
markets this year, the S&P 500 TR Index was up nearly 15% through
the end of November.
But such strong market returns have not translated into positive flows
for actively managed U.S. stock funds, which remain in net redemption mode (versus what looks to be a near record year for passive equity
flows). The nearly $115 billion that has flowed out of these funds since
the start of the year has already surpassed the record $108 billion
that flowed out of them during all of 2008.
With just one month left in the year, outflows from actively managed
U.S. stock funds had already surpassed the record level of outflows
during 2008. At close to $115 billion, outflows during the first 11
months of 2012 are already $6 billion higher than they were during 2008
and more than $14 billion higher than they were last year, which was the
second-highest year of outflows on record (according to data provided
by Morningstar Direct).
While actively managed U.S. stock funds remain in net redemption mode,
index funds and ETFs dedicated to the category are on pace not only to
surpass the level of inflows that were seen during 2011, but also post
their best year since 2008. The big winner on the index side of the
business continues to be Vanguard Total Stock Market Index, which
currently tracks the MSCI U.S. Broad Market Index and has accounted for
more than 40% of the $29 billion that has flowed into U.S. stock index
funds this year.
Despite gains in the U.S. equity markets, as represented by the S&P
500 Index, during June (up 4.3%), July (up 1.0%), and August (up 2.3%),
investors continued to pull money out of actively managed U.S. stock
funds last month. This marks the 18th straight month of outflows from
the category, leaving 2012 on pace to match the level of investor
outflows that were recorded last year, which at $97 billion were second
only to the nearly $115 billion that flowed out during 2008.