Asset flows into U.S. mutual funds and exchange-traded products led a huge surge in global flows last year, Morningstar reported Monday.
Worldwide flows reached nearly $2 trillion in 2017, compared with the previous year’s $835 billion, and U.S. flows accounting for an estimated $798 billion of this amount.
Approximately $642 billion flowed into cross-border funds, which tend to be domiciled in tax havens and distributed in many markets, including Europe, Asia, Latin America and the Middle East.
Cross-border flows experienced 13% organic growth, more than twice Europe’s 6% according to the report. Growth was also strong across emerging markets: 10% in Asia and 8% in Latin America.
Morningstar said 2017 total inflows were the largest in a decade after having fallen in both 2015 and 2016.
“Rallying equity markets, subdued volatility, and stable interest rates appear to have lifted investor confidence worldwide,” Kevin McDevitt, senior analyst at Morningstar, said in a statement.
The MSCI All-Country World Index grew by 24% in U.S. dollars, and emerging markets returned 37%, as measured by the MSCI Emerging Markets Index, led by India and China.
“While all asset classes saw inflows, investors showed a preference for fixed income funds in a stable rate environment,” McDevitt said.
Fixed income funds garnered an estimated $830 billion in inflows, while equity funds gathered approximately $580 billion. Bond funds’ 12.6% year-over-year organic growth rate was second only to that of alternative funds, which grew by 13.4%. Commodity funds trailed at 7.8%.
The report was based on assets reported by some 4,000 fund groups across 85 domiciles, and represents more than 95,000 fund portfolios encompassing upward 240,000 share classes.
Morningstar estimated net flow for mutual funds by computing the change in assets not explained by the performance of the fund and net flow for ETPs by computing the change in shares outstanding.
According to the report, passive equity funds continued to take market share from their active counterparts across the board with $662 billion in inflows.
However, the U.S. was the only market in which passive fixed income funds grew their market share, with $210 billion for passive funds versus $176 billion for active ones.
Among fund families, BlackRock and Vanguard held the bulk of industry assets, the former enjoying $402 billion in inflows last year, thanks largely to its iShares exchange-traded funds, and the latter with inflows of $385 billion.
Their mutual fund and ETF assets amounted to $7.5 trillion all told, nearly equal to the $7.9 trillion of assets managed by their eight largest competitors combined, the report said.
Demand for equity funds resurged in 2017 as U.S. investors directed nearly $300 billion into equity products, well above the tepid $17 billion in 2016.
It was notable, however, that $240 billion of these inflows went to non-U.S. equity funds. Morningstar said this may be because the S&P 500 gained 22%, while markets outside the U.S. generally did even better.
In addition, Europe-based equity funds took in some $135 billion, Asian equity funds $72 billion and cross-border ones about $53 billion.
— Check out Advisors Make the Case for Short-Term CDs, Bonds and Treasury Bills on ThinkAdvisor.