Morningstar's latest fund flows report shows passive funds continuing to trample active products. Overall, in the first month of 2016, passive funds attracted some $18.5 billion in assets, while passive products saw $30.9 billion move out the door.
This trend continues the movement that the research group has tracked for the last 12 months: active funds had outflows of $245 billion from February 2015 to January 2016 vs. inflows of $408 billion into passive products.
Where did the money go in the first month of the year? In terms of passive products, investors especially were drawn to taxable bond funds ($8.5 billion), international equities ($5.8 billion), U.S. equities ($4.4 billion) and commodities ($2.6 billion). Active international equities funds ($4.1 billion), municipal bonds ($4.5 billion) and alternatives ($1.5 billion) also attracted inflows.
As for withdrawals, investors pulled about $19 billion out of active U.S. equity funds, $12 billion from active taxable bonds, $4.2 billion from passive sector products and $3.4 billion from active sector funds.
Combining both the active and passive categories, the total amount of investor withdrawals in January was $12.5 billion. U.S. equity funds lost about $15 billion; however, international-equity funds experienced about $10 billion of inflows, and muni-bonds drew roughly $5 billion.
“Municipal-bond fund flows have been positive since October and on the rise in the last two months, suggesting investors are seeking the safety and tax breaks of municipal bonds amid rising interest rates and bond market uncertainty,” explained Alina Lamy, a senior analyst with Morningstar, in the report. Meanwhile, taxable-bond funds have experienced volatile, mostly negative flows since June and lost $3.5 billion to outflows in January.
Commodities in both the active and passive categories had higher-than-normal total inflows of $3.3 billion in January; passive funds collected most of the new assets. Plus, precious-metals funds experienced their first notable inflow in six months, according to Morningstar, led by SPDR Gold Shares (GLD) with inflows of $1.4 billion.
“Another interesting fact is that, despite plummeting oil prices, the energy category hasn't been experiencing dramatic outflows, as may have been expected. Some investors may be trying to time the bottom,” Lamy stated.
The panic affecting the high-yield market, which followed the closure of Third Avenue Focused Credit in December, subsided to some degree; however, concerns remain for the sector's resilience given falling oil prices.
Among active funds in January, Lamy points out, investors favored the DoubleLine Total Return Fund (DBLTX) and PIMCO Income Fund (PIMIX), as well as equity offerings such as Cambiar International Equity, American Funds Europacific Growth and American Funds American Balanced.
Overall, taxable-bond funds sustained $3.5 billion in outflows in January, with most of the outflows seen in the high-yield category.
In terms of tmarket performance in the first month of ’16, the S&P 500 and MSCI EAFE dropped 5.0% and 7.2%, respectively. “Plunging oil prices and concerns over global growth potential caused increased market volatility, weighing heavily on equities and also on some fixed-income sectors,” the analyst explained.
As the markets grew increasingly volatile in early-’16 January, investors turned to munis and gold. “In times of market stress, conservative investors turn to the safety of municipal and government bonds. More-aggressive investors tend to favor the potential benefits of gold as a hard asset and a wealth-preservation vehicle,” Lamy said.
Vanguard led both the active and passive packs in January, with close to $22 billion in total inflows. American Funds had the most active inflows at $975 million; T. Rowe Price and State Street stayed in positive territory.
While money went to the DoubleLine Total Return Bond Fund and PIMCO Income Fund on the active side, investors preferred two iShares government-bond ETFs on the passive side.