Investors have “given up on active management for U.S. equity” states Morningstar’s latest commentary on monthly fund asset flows through the end of January.
Net flows into actively managed U.S. equity funds fell $24.1 billion in January and $211 billion for the 12 months ended Jan. 31, according to Morningstar. In contrast, net flows into passive U.S. equity funds rose by $41.1 billion in January and by $233.5 billion for the 12 months ended Jan. 31.
“Far from running away from the U.S. stock market, investors were eager to embrace it and its stable returns — but in the form of low-cost offerings only, it seems,” according to the Morningstar report.
(Related: Morningstar’s January Winners & Losers)
Morningstar estimates net flow for mutual funds by computing the change in assets not explained by the performance of the fund and net flow for ETFs by computing the change in shares outstanding.
Net flows into low-cost passive U.S. equity funds and ETFs have been so strong that their total assets as of the end of January had climbed to over 86% of the total assets of actively managed U.S. equity funds.
For the second month in a row, State Street’s SPDR S&P 500 index fund (SPY) saw the largest monthly net inflows of any passive U.S. equity fund, accounting for almost half of those inflows in January. Usually the fund sees large inflows in December as portfolio managers park proceeds from sales of equities before year end and large outflows in January as they reallocate those assets. The inflows this January may be another sign of the preference for passively managed funds or they may be an anomaly followed by the net outflows February, notes Morningstar.
Despite the larger inflows into SPY, Vanguard’s S&P 500 Index Fund, the runner-up for net inflows in January, ended the month with $292.4 billion in assets, about 7% more than the total assets of the SPDR S&P 500 index fund.
Morningstar estimates net flow for mutual funds by computing the change in assets not explained by the performance of the fund and the net flow for ETFs by computing the change in shares outstanding.