“Passive beats active” is by now rote. However, Morningstar finds that, in a pattern reversal, alternative and commodities funds saw passive management outflows and active management inflows in July, signaling a taste for the tactical from investors in the non-correlated portions of their portfolio.
Overall, equity remained in outflow territory, losing $19.6 billion in redemptions from active funds, compared with $14.6 billion in the previous month. Passive funds had inflows of $10.8 billion, up from $9.3 billion in June, according to the Chicago-based research behemoth.
Taxable-bond and international equity categories hit big, with inflows of $34.7 billion and $23 billion, respectively, the majority of which came from passive funds.
In its July World Economic Outlook Update, the International Monetary Fund reduced the U.S. GDP growth forecast for 2017 to 2.1 percent from 2.3 percent, while raising Europe’s expected growth rate to 1.9 percent from 1.7 percent.
Additional findings include:
- The four Morningstar Categories with the highest inflows in July are consistent with the previous month: foreign large blend, intermediate-term bond, large blend, and diversified emerging markets, anticipating stronger growth potential after the MSCI Emerging Markets Index returned 25.5 percent year to date.
- Among top U.S. fund families, PIMCO was the leader in active flows with $2.5 billion, followed by Vanguard with $1.5 billion. On the passive front, Vanguard was the top fund family, with inflows of $20.1 billion, closely followed by BlackRock/iShares with inflows of $14.5 billion.
- Top active funds in July include PIMCO Income, which has a Morningstar Analyst Rating of Silver, with flows of $2.7 billion, followed by Gold-rated Oakmark International with $1.2 billion in flows. The passive funds with the highest inflows were Gold-rated Vanguard Total Stock Market Index Fund and iShares Core S&P 500 ETF, which saw respective inflows of $4.6 billion and $4.1 billion.
- Silver-rated Fidelity Contrafund had the highest outflows for active funds at $1.4 billion, while on the passive front, Gold-rated Vanguard Institutional Index Fund saw outflows of $4 billion.