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Passive Funds Trounce Active Rivals in May: Morningstar

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Morningstar says investors kept moving money into fixed income in May, while putting more funds into passive equity products. The PIMCO Income Fund, for instance, enjoyed inflows of $1.6 billion, while PIMCO’s active funds had total outflows of $320 million in May.

The research group says that active funds overall (including both equity and fixed income funds) had outflows of roughly $13.5 billion in May; the outflows total about $308 billion for the past 12 months. Meanwhile, passive products attracted $22 billion over the past month and $375 billion since June 2015.

“On the passive side, DFA and Fidelity enjoyed healthy flows, while State Street took a hit,” senior analyst Alina Lamy said in a report. “For the year to date, American Funds and T. Rowe Price are the only active companies with positive flows … T. Rowe Price, State Street, and JPMorgan managed to stay positive, but just barely.”

Active U.S. equity funds had outflows of $18.7 billion in May, while passive funds collected $8.1 billion.

“U.S. equity remained stuck in its pattern of passive inflows and active outflows. Worries over weakness in the most recent employment report were offset by hopes that the same weakness might lead the Federal Reserve to postpone raising interest rates,” explained Lamy.

The most popular fixed income category for May was the taxable-bond group, with $15.4 billion of inflows. It the past 12 months, inflows have totaled $28.1 billion. 

According to Morningstar, international equity products “sustained outflows across the board” due to concerns that Britain may leave the European Union. These outflows reached $6.6 billion in May, the worst level of international equities since August 2011.

Commodity funds, though, spiked in May, with most inflows, $2.5 billion, going into passive funds, namely precious metals.

Fund Families

Vanguard continues to top the charts when it comes to inflows, Morningstar’s resesearch finds.

Its passive funds collected nearly $19 billion in May and have attracted more than $205 billion in the past 12 months, while its active funds drew nearly $3 billion last month and $18.5 billion in the past year.

Rival iShares/BlackRock had outflows of $3.5 billion in its passive funds in May, but these flows are up nearly $90 billion for the last 12 months. On the active side, its fund had outflows of $1.3 billion in May and lost $7.1 billion in the past year.

Fidelity investments had outflows of $3.5 billion on the active side in May, but picked up $2 billion in passive fund flows. For the past 12 months, its active funds experienced more than $32 billion of outflows, while its passive products attracted more than $17.5 billion.

As for PIMCO, its active funds had outflows of $320 million in May and nearly $46 billion over the past 12-month period. Its passive products picked up $50 million of inflows in May but have seen outflows over $590 million for the past year.

Nonetheless, the PIMCO Income Fund topped the list of active funds with May inflows of $1.6 billion and 12-month inflows of $12.5 billion.

These flows, though, were dwarfed by those at Vanguard’s Total Stock Index Fund. It was the most popular passive fund in May with inflows of $3.4 billion. For the past 12 months, it has added $58.2 billion of inflows. 

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