A horrible month capped a horrible year for active management mutual fund flows (or the opposite, if you’re particular to the passive strategy side of the debate).
Research bigwig Morningstar reported that investors ended the year by “favoring passively managed U.S. equity funds over actively managed funds by an estimated $51 billion in passive funds in December.”
On the active side, investors pulled $23 billion out of equity funds during the same month.
Highlights (or lowlights, depending on one’s perspective) from Morningstar’s report about asset flows in December include:
- Investors’ preferences have shifted to favoring stock funds over bond funds, amid growing optimism about the U.S. economy and continued rising interest rates and inflation. The overall inflows tally for stock funds hit its highest monthly total since April 2000, at $27.8 billion. Taxable bond funds saw overall net inflows of $14.6 billion in December.
- December 2016 saw overall outflows from alternative strategies of $4.4 billion, with full-year outflows of $4.7 billion. This marked the worst showing for alternative funds since 2005 and is a significant reversal from 2015 when they took in $13.3 billion.
- Morningstar Category trends for December showed bank-loan funds as a leading category with inflows of $6 billion on the active side and $1.4 billion for passive strategies, continuing a recent trend of growing interest in these funds.
- Vanguard dominated the flows landscape in 2016. The firm took in $277 billion in total new money during the year, finishing at $3.4 trillion in long-term assets. American Funds saw $4.9 billion in active outflows during 2016, while Fidelity Investments offset some of the bleeding on the active side with $37.2 billion in passive inflows.
- Among index-fund and exchange-traded funds, SPDR S&P 500 ETF took in the most assets at $14.3 billion for December 2016, followed by three Vanguard funds with offerings for U.S. stocks, international stocks, and U.S. bonds.
- PIMCO Income is the top active individual fund in terms of inflows; the fund took in $1.5 billion in December and $13.7 billion for 2016. Bronze-rated Franklin Federal Tax Free Income bucked the trend for outflows in December among active municipal-bond funds, seeing inflows of $1.4 billion.
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.
