August Fund Outflows: Worst Since Late ’08

Estimated outflows from long-term mutual fund and exchange-traded fund assets were $32.5 billion in August, double the amount in July and the most “severe mutual fund outflows since November 2008,” according to a Morningstar report released Wednesday.  

In the same period, U.S. ETFs collected assets of $947 million, following inflows of $17.2 billion in July; ETFs have realized only a one month of outflows in the past year, the Chicago-based research group says.

A competing research firm, New York-based Strategic Insight, says outflows were even greater than Morningstar’s estimates due to extreme volatility in the markets. “In an unusually volatile month, nervous investors redeemed an estimated $34 billion in net cash out of U.S. stock and bond mutual funds in August 2011 (in open-end and closed-end mutual funds, excluding ETFs and funds underlying variable annuities),” the group said in its Wednesday news release.

August was the third-consecutive month of net outflows from long-term funds, after net outflows of $16 billion in July, according to Strategic Insight.

“Fund shareholders were clearly shaken by a dramatic month,” SI said in a press release. “August started with a protracted political fight over the federal government’s debt ceiling, capped by Standard & Poor’s decision on Aug. 5 to downgrade the U.S.’s long term credit rating from AAA to AA+. The S&P 500 index ended August down 5.4%, but experienced extreme declines and rebounds along the way.”  

Morningstar’s Analysis

Despite the recent volatility, U.S.-stock outflows fell to $15.5 billion during the month after redemptions of $22.9 billion in July, Morningstar says. However, risk aversion spread to fixed income, as investors pulled $12.0 billion from taxable-bond funds in August. Bank-loan and high-yield bond funds were hardest hit, the research firm says, with outflows of $7.3 billion and $5.1 billion, respectively.

Investors sought refuge in money-market funds, which saw inflows of $74.8 billion, says Morningstar (MORN). This was the biggest monthly inflow for such funds since January 2009, and partially reversed June and July’s combined $150.0 billion in outflows, the group adds.

Meanwhile, modest outflows continued for international-stock and balanced funds in August, which had respective outflows of $2.9 billion and $2.3 billion.

U.S. stock ETFs, which typically drive overall ETF flows, experienced inflows of less than $400 million in August, while international-stock ETFs lost $5.5 billion during the month. This was the greatest outflow for any ETF asset class, and it marked the largest monthly net redemption for international-stock ETFs in the past three years, Morningstar reports.

Taxable-bond offerings added $4.3 billion in August and had greater inflows than any of the other ETF asset classes during the month.