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Funds Make Comeback from ‘09

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Morningstar says taxable-bond funds collected about $28.5 billion in asset inflows in February, the largest monthly uptick since January 2013. The greatest inflows went to high-yield bond funds, which may do well in a rising interest-rate environment; utilities funds had the largest February outflows.

Total flows into long-term active funds were $14.3 billion in February, while they were close to $50 billion for passive funds. During the period, money-market funds had outflows of $10.5 billion.

As for fund families, Vanguard continued to dominate inflows among passive providers, according to the fund research group. It had passive flows of $19.6 billion in February and $225.3 billion for the past 12 months.

Vanguard also took the lead among active providers in February with $2.7 billion in flows. J.P. Morgan remained the top provider as measured by one-year inflows among active-fund providers at $96.6 billion.

PIMCO’s total redemptions came to nearly $175 billion since January 2014, representing a 33% drop in assets. In the six months since PIMCO co-founder Bill Gross’ departed for Janus Capital, the popular PIMCO Total Return has shed close to $100 billion as of Feb. 28.

These outflows boosted inflows to other intermediate-term bond funds, including the Metropolitan West Total Return Bond and Dodge & Cox Income.

Six-Year Gains

On March 9, 2009, the stock market hit 12-year lows. The Dow Jones traded under 6,550, while the S&P 500 was trading near 676 and the Nasdaq at 1,268.

Six years later, the Dow has been trading at around 18,000, the S&P 500 near 2,100, and the Nasdaq at almost 5,000. All three indexes recouped their losses from the crisis and returned to their earlier growth trends.

Of course, this is great news for both advisors and investors, says a Morningstar expert, as the bull run since ‘09 has lifted mutual funds across the board.

“What’s been so striking? It’s the absolute returns of these [different] categories,” said Laura Lutton, a director of manager research and equity-funds analyst, in an interview. “They’re a testament to [power of] the equity market when we’re in a period of economic recovery. It bears out the comeback story.”

Over the past six years, Morningstar research finds that cumulative returns for small- and large-cap funds, as well as value and growth funds, ranged from about 217% to 247%. That means they’ve produced average annualized returns of about 21%–24% since March 9, 2009.

Among the six groups of open-end mutual funds, the top performer is mid-cap value, with cumulative returns of 270.2% and average yearly returns of 24.4%. The weakest performer is large-cap growth; its returns are about 217.0% and 21.3%, respectively.

Coming close to mid-cap value’s returns are those of the small-cap value group, with cumulative performance of 267.4% and average yearly results of 24.3%.

“Really, these [top] performers are so close when it comes to the annualized returns, you don’t need to sweat the difference,” Lutton said.

“It’s fairly typical to see small- and mid-caps outperform large companies in this type of environment,” she explained. “This is where we see the green shoots, the growth coming out of econ downturn that economists talk about.”

The returns of large-cap sectors are “extraordinary,” too, the fund expert says. “It’s been a period that has rewarded risk taking. Overall, it’s a very happy story.”

Market Lessons

When it comes to the importance having a long-term view of investing, the numbers don’t lie, Lutton noted: “The data show the value of having a diversified portfolio and of staying invested—you enjoy the rally.”

But investors often need some help from advisors. “Getting clients to stay invested in double-digit declining markets can be much harder conversations to have than others,” she added.


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