The spigot was turned back in November, as the ongoing flow from active to passive mutual funds took a bit of a holiday breather.
After more than doubling their inflow amount the previous month, investors placed $16.6 billion into passive equity funds, compared with October’s $27.6 billion inflow, according to Morningstar.
Active flows were also smaller in November than they were in October, and investors pulled $17.9 billion out of active equity funds, compared with $18.8 billion in the previous month.
Highlights from the report include:
- Taxable bond remained the leading category group in November with $24.7 billion in flows overall, divided almost evenly between the passive and active side. Following taxable bond was international equity, which saw inflows of $18.7 billion overall.
- High-yield bond suffered the largest outflows of all categories, as investors steered away from the higher risk those bonds carry. In general, high-yield bond is a category with volatile flows, and a one-off month of large outflows when investors get scared isn’t that uncommon. Only earlier this year, in March, investors redeemed $8.6 billion from high-yield-bond funds.
- The proposed tax reform may have had something to do with the outflows, because it is limiting the tax-deductible amount of interest expenses. High-yield debt companies would be negatively affected by this new provision because their interest expenses are much higher, and not being able to write them off would adversely affect profitability
- The two Morningstar Categories with the highest inflows in November remained the same: intermediate-term bond and foreign large blend. The two Categories with the largest outflows were high-yield bond and large growth.
The Chicago-based research firm estimates net flow for mutual funds by computing the change in assets not explained by the performance of the fund and net flow for ETFs by computing the change in shares outstanding.
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.
