Is Active Management Exodus Starting to Subside?

Investors continued to pour money into bonds

401k, mutual funds, flows, active, passiveThe active management clouds might (possibly) be lightening.

The outflows might be starting to slow.

In May, investors pulled $16.2 billion out of active equity funds, compared with $16.8 billion in the previous month. Conversely, investors “only” put $13.1 billion into equity passive funds, down from $17.1 billion in April 2017.

We get it; small victories, but active managers will probably take good news whenever they can.

In its monthly roundup of fund flows, Morningstar notes that on June 14, the Federal Reserve raised the federal funds rate for the fourth time since tightening began in December 2015.

However, investors continued to pour money into bonds. Taxable-bond funds were the overall leader among category groups, with inflows of $36.9 billion; international equity followed closely behind with inflows of $35.7 billion.

The three Morningstar categories with the highest inflows in May were foreign large blend, intermediate-term bond, and large blend.

International-equity flows have been concentrated in foreign large blend, a category that invests in a variety of large-cap international stocks. Most of these portfolios divide their assets among a dozen or more developed markets, including Japan, Britain, France, and Germany.

Among top U.S. fund families, PIMCO and American Funds had active inflows of $3.7 billion and $3 billion, respectively. Vanguard was the top fund family on the passive side, with inflows of $35.4 billion, followed by BlackRock/iShares with $18.3 billion in inflows.

PIMCO Income continued to dominate active funds in May with inflows of $2.8 billion. Gold-rated Oakmark International had inflows of $1.3 billion, the second highest among active funds.

The passive fund with the highest inflows was Vanguard Total Stock Market Index, which saw $8.5 billion in inflows. iShares MSCI EAFE ETF was the beneficiary of large flows to the foreign-large-blend category and saw $4.1 billion of inflows.

Harbor International appeared on the bottom five list of active funds, with outflows of $1.4 billion. On the passive side, iShares Russell 2000 saw the highest outflows of $4.9 billion.

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