Mixed Behavior with March Mutual Fund Investing

401k, retirement, outflows, Morningstar

Confounding.

A crazy and volatile coronavirus-driven March didn’t play out as one would think given the market meltdown, at least with mutual fund flows.

“As equities and pockets of the bond market sold off in March, long-term mutual funds and ETFs posted record outflows of $326 billion, or 1.7% of the industry’s $19.7 trillion in assets at the end of February,” Chicago-based Morningstar notes.

Yet, despite the turmoil in equity markets, the research firm reports that long-term U.S. equity funds attracted $10.5 billion in net inflows during the month.

Passively managed equity funds accounted for virtually all the inflows, bringing in $41 billion. More than $12 billion of that went to SPDR S&P 500 ETF.

Actively managed funds shed $31 billion, almost the same amount as in January before the sell-off began.

In March, taxable-bond funds suffered record outflows of $240 billion, which was also the greatest outflow for any asset class. It ended a streak of 14 consecutive months of inflows in which taxable-bond funds collected $479 billion.

Money market funds gathered a record $685 billion in inflows in March. For the quarter, these funds raked in $694 billion—a 19% organic growth rate.

Fund family performance

Among all fund families, Fidelity led with $39 billion of outflows from its long-term funds in March (2.3% of its February total net assets), with nearly $23 billion coming out of its taxable- and muni-bond offerings.

For only the second time in 10 years, Vanguard’s long-term funds experienced net monthly outflows of $37 billion, mostly from its bond funds as well.

On the other hand, equity-heavy American Funds came through relatively unscathed, with its $16 billion of outflows amounting to less than 1% of its February assets.

Morningstar estimates net flow for mutual funds by computing the change in assets not explained by the performance of the fund, and net flow for U.S. ETFs by dividing reported net assets by shares outstanding.

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