In 2014, passive trumped active investing as measured by inflows and outflows from mutual funds and exchange-traded funds, Morningstar announced Wednesday.
Active U.S. equity funds were the biggest losers for the year, with net inflows of $98.4 billion while passive U.S. equity funds had net inflows of $166.6 billion.
The big outflows from PIMCO’s Total Return bond fund occasioned by, finally, Bill Gross’ departure for Janus Capital heavily influenced the $17.1 billion in 2014 net outflows from Morningstar’s active taxable fixed income category. In December, $23 billion flowed out of that bond fund category; overall in the month, $33.8 billion flowed out of active funds of all kinds, while $72.6 billion flowed into passive funds.
Earlier this month, PIMCO said that in December, $19.4 billion flowed out of PIMCO Total Return Fund (PTTRX), though it said the “average daily pace of outflows remained significantly slower from the peak rate in late September and early October 2014.”
For the year among all funds, passive funds had net inflows of $420 billion, while active funds gained $44 billion. Total assets among all active funds ended the year at $9.75 trillion, while passive funds ended the year at $4.12 trillion. On the passive side of the equation, taxable bond funds saw net inflows of $104.7 billion.
(Morningstar’s definition of ‘net flows’ is the change in assets of a fund not explained by the performance of the fund.)
In her written commentary on the fund flows, Morningstar’s senior analyst for markets research, Alina Lamy, noted that the 2014 outflows from the active taxable bond funds “may not be representative of the category in general, but they certainly go a long way to show how diminished investor confidence can have far-reaching repercussions.”
Looking at longer-term trends, Lamy pointed out that from 2009 to 2012, fixed income funds attracted the “great majority” of investor funds; only in 2013 did U.S. and international equity fund flows exceed bond fund flows.