Active U.S. Equity Funds Bled Cash in August: Morningstar

Active U.S. equity funds continued to hemorrhage assets in August while their passive counterparts persisted in attracting investor money, Morningstar reported Friday.

Active funds experienced outflows of $25.4 billion, down from July outflows of $32.9 billion, while passive attracted $16.4 billion, about half the previous month’s $33.8 billion intake.

Similarly, international equity funds saw outflows from active ones and inflows into passive ones. The Morningstar report noted an important detail, however: total international equity flow last month consisted of a $7.3 billion outflow from developed markets and a $6.2 billion inflow into emerging markets.

Taxable bond funds accumulated flows of $27.8 billion and municipal bond funds $7.4 billion in August. The report said this reflected investors’ preference for a steady income stream and suggested most investors were not especially worried about rising interest rates.

Commodity funds experienced a trend reversal in August with a $1 billion outflow from passive funds.

Morningstar estimates net flow for mutual funds by computing the change in assets not explained by the performance of the fund, and estimates net flow for ETFs by computing the change in shares outstanding.

Other Findings

The diversified emerging markets category, consistently on the top-flowing list for the past few months, had August inflows of $5.5 billion. Several factors account for investor interest, according to the report: stronger currencies, diminishing worries about China and young populations driving more potential for growth going forward.

Returns certainly have been favorable. Year to date, the MSCI Emerging Markets Index is up 14.5% compared with the MSCI EAFE’s return of 0.5% and the S&P’s 7.8%.