Investors continue to take a vacation from active mutual funds, according to Morningstar’s July data.
“Instead of soaking up the sun, it seems investors were busy taking money out of active U.S. equity funds in July,” the group explained in a report on Monday. “This month’s $32.9 billion estimated outflow surpassed the $21.7 billion from June, adding up to a total of $54.6 billion leaving these funds in only two months.”
The outflows affected more than active-equity funds, according to Morningstar.
The Chicago-based research firm says most active category groups — with the exception of taxable bond funds, municipal bond and commodities funds — experienced outflows. On the flip side, flows for all category groups with a passive investing strategy were positive.
In fact, passive U.S.-equity inflows in July were nearly $34 billion, offsetting the large level of active-equity fund outflows.
“In terms of total flows (active and passive combined), the taxable bond category group remained the undisputed leader with $34.0 billion, followed by municipal bond and commodities,” explained Alina Lamy, a senior analyst of markets research and author of Morningstar’s July report.
“Allocation, international equity and sector equity ended up in negative territory for the month,” Lamy added.
Over the past 12 months, active allocation funds (which combine stocks, bonds and cash) have seen outflows of roughly $60 billion, but these outflows are well outpaced by those in the active U.S. equity category — totaling $211 billion.
Other strong outflows for the 12-month period ending July 31 include the active taxable bond fund group, $47 billion, and active international equity funds, $39 billion.
“With yields all over the world not only at all-time lows but even negative in some cases, bond performance has been solid across all categories,” according to Lamy.
“Decent returns and the promise of a steady stream of income at a risk level that still allows you to sleep at night add up to an investment proposition that is hard to beat,” she added.
Two fund groups had positive fund flows in both their active and passive products in July.
Vanguard drew $2 billion in active fund flows and $21 billion in passive fund flows, while State Street attracted $94 million in active fund assets and close to $11 billion of passive fund assets.
BlackRock iShares’ passive products brought in about $20.6 billion in fund inflows, but it had outflows of about $2 billion in active products.
The most popular active funds in terms of July inflows were Invesco Diversified Dividend, $1.3 billion; MFS Emerging Market Debt, $1.1 billion; and BlackRock High Yield Bond Portfolio, $1.05 billion.
On the passive side, the SPDR S&P 500 topped the chart with inflows of over $11 billion, followed by iShares MSCI Emerging Markets, $4 billion, and Vanguard 500 Index, $4 billion.
Funds with the greatest level of outflows included these active funds: Templeton Global Bond, $1.6 billion; Vanguard Primecap, $1.4 billion; and BlackRock Global Allocation, $1.3 billion.
Some passive funds with large outflows were Vanguard Institutional, $2 billion; Vanguard Euro Stock Index, $1.5 billion; and iShares MSCI Japan, $1.5 billion.
“For the second consecutive month, all the firms in the top 10 except Vanguard and State Street experienced outflows on the active side. In other words, all firms except the two famously known for their passive expertise were unable to attract flows to their active offerings,” explained Lamy.
“American Funds, which had been doing well at the beginning of the year, suffered its second monthly outflow,” she stated.
Meanwhile, Fidelity had passive inflows of $4.7 billion after it moved to lower fees for those products. The company still experienced had outflows of close to $9 billion on the active side, however.
— Check out Fidelity Fires Latest Shot in Index Fund Fee War on ThinkAdvisor.