It might have been a bit of buyer’s remorse over the election, causing a flight to fixed income safety.
The new administration’s promises of tax cuts and infrastructure spending spurred confidence in U.S. equities in late 2016, according to Morningstar, but the majority of the flows redirected to fixed income and international-equity funds in early 2017.
As the Trump era got under way with the inauguration in January and initial controversy of executive orders, investors put a far smaller $30.6 billion into U.S. equity passive funds, as opposed to $50.8 billion in December 2016.
On the active side, investors pulled (again) $20.8 billion out of U.S. equity funds during the month, signaling more trouble for the beleaguered space.
Morningstar also notes that typically, traditional bonds do not perform well in an environment of rising interest rates, yet investors still chose taxable-bond funds in the month following the federal interest rate increase in December with total inflows of $32.2 billion.
The Chicago-based research firm adds that Vanguard has dominated the asset management industry in terms of inflows for the past two years, as it attracted positive and increasing flows while the rest of the industry sank into outflow territory. In 2016, Vanguard alone attracted $1.1 billion of investor money daily.
Among active funds, PIMCO Income, which has a Morningstar Analyst Ratin of Silver, attracted the largest inflows of $1.6 million and Bronze-rated PIMCO Total Return suffered the largest outflows of $1.6 million in January. Despite sizable outflows from the allocation category group, Silver-rated American Funds American Balanced is second in the top-flowing five funds in January because of its consistent performance, garnering $915 million in the month. This fund was on the top-flowing list consistently in 2016.
Among passive funds, SPDR S&P 500 ETF was the fund with the largest outflows in January of $3.3 billion, which is typical of the fund’s flows pattern each year.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
