Investors continue to take their money out of active funds at a rapid clip.
“Not only did active U.S. equity funds post a $21.7 billion estimated outflow in June, but all active category groups except municipal bonds suffered outflows,” Morningstar said in its analysis of June fund flows, released Tuesday. “In contrast, all flows (except alternative) on the passive side were positive.”
In addition, the Chicago-based research firm says, active U.S. equity products experienced the largest monthly outflow since October 2008.
Taxable- and municipal-bond funds, on the other hand, are attracting a steady streak of inflows, as are commodities.
“The S&P 500 returned a modest 0.3%, and the MSCI EAFE lost 3.4% in June,” explained senior analyst Alina Lamy in the group’s report. “However, the flows story, for once, does not seem to follow returns: Investors withdrew $13.0 billion from U.S. equity [funds] and only $56 million from international equity.”
Given the recent uncertainty surrounding the global economy, investors have been moving funds into lower-risk assets, Lamy adds, “hence the sustained inflows to bonds seen since January.”
Aggregate bonds, as measured by the Morningstar Core Bond Index, have returned 5.3% through June 30, while municipal bonds – tracked by the Barclays Municipal Bond Index – are up 4.3%.
“This may not seem like much, but in today’s world of diminishing returns, it still looks like a pretty good deal,” the analyst stated.
As for fund families, Fidelity and Franklin Templeton suffered the largest outflows in June.
“In fact, all the firms in the top 10 except Vanguard and State Street experienced outflows on the active side. Even American Funds, which had been doing well for the past few months, suffered an outflow,” Lamy said.
Fidelity, for instance, had June outflows from its active funds of $3.8 billion; these outflows total $32.2 billion for the past 12 months. Its passive funds, though, had inflows of $3.3 billion in June and $19 billion for the past year.
“The company announced it would be lowering fees on 27 of its equity and bond index funds and ETFs in an effort to compete in the new arena where active funds keep bleeding assets and passive funds thrive. Industrywide data has repeatedly shown that investors are becoming more and more sensitive to cost, and Fidelity has now taken action to reposition itself as a viable competitor to rivals Vanguard and BlackRock/iShares,” the Morningstar analyst explained.
Franklin Templeton’s active funds experienced outflows of $3.7 billion in June and $46.7 billion over the past 12 months; it has no passive products.
Vanguard, on the other hand, had inflows into both its active and passive funds: Investors purchased $3.3 billion of active funds in June and $16.8 billion of passive products; for the last year, these flows have been $16.8 billion and $202.7 billion, respectively.
If Vanguard gave away its average flow for one day ($740.5 million), every person in the U.S. would receive $2.32,” Lamy said. Fund Focus
American Funds American Balanced (ABALX) was a top attractor of fund flows to active products in June, according to Morningstar, thanks to its “consistent performance.”
It drew $1.2 billion of assets in June and $7.3 billion over the past 12 months.
Another active product that is proving to be popular with investors is the Bridge Builder Core Plus Bond Fund (BBCPX). It saw $1.2 billion of positive fund flows in June and $4.3 billion over the last year.
The PIMCO Income Fund (PONCX) had inflows of close to $960 million and roughly $12 billion in these periods, respectively.
As for passive funds, the Vanguard Total Stock Market Index Fund (VTSMX) had inflows of $3.5 billion in June and $25.8 billion over the last year.
SPDR Gold Shares (GLD) also had inflows of $3.5 billion last month; its 12-month inflows total $10.1 billion.
“Flows into commodities spiked again in June, fueled exclusively by precious metals funds (flows into all other commodities categories, except agriculture, were negative),” according to Morningstar’s latest report. “The majority of these inflows went into gold exchange-traded funds.”