For the first time in five years, actively managed U.S. equity funds beat their passive counterparts in terms of asset flows, but not by much.
Actively managed U.S. equity funds had inflows of a only $5 million in January, while passive U.S. equity funds lost $3.8 billion in outflows, according to Morningstar, whose report includes flows for mutual funds and ETFs. At the same the S&P experienced its best performance since 1987, up almost 8%, and the Dow Jones industrial average had its best January in 30 years.
The Morningstar report, written by analysts Kevin McDevitt and Michael Schramm, attributes this irony to rebalancing by target date funds and other managed portfolios. “Because of January’s strong equity returns, managed portfolios, such as target date funds, with fixed allocations to individual funds may have been forced to trim their U.S. equity funds.”
Overall, actively managed funds saw net inflows of $11.7 billion in January, but bond funds — munis and taxable bond funds — accounted for much of the increase, along with international equity funds.
Actively managed muni funds had net flows of almost $8 billion while actively managed taxable bond funds had net inflows of $3.9 billion. Actively managed international equity funds saw net inflows of $4.9 billion.
Total flows into passive funds bested flows into active funds, in keeping with recent trends, and totaled $27.4 billion. Taxable bond flows ($27.5 billion) led, followed by flows into international equities ($9.2 billion).
“Passive strategies tend to dominate taxable core categories, and that was certainly the case in January,” according to the Morningstar report.
Vanguard led all other fund companies in net January flows, at $19.7 billion for active and passive funds combined, followed by Fidelity Investments ($7.6 billion) and American Funds ($4.6 billion), which has only actively managed funds. Inflows into BlackRock iShares funds were just $379 million, the firm’s worst showing since June.
Vanguard had positive flows for active ($2.0 billion) and passive funds ($19.7 billion) while Fidelity experienced outflows in actively managed funds (-$2.2 billion) but inflows into passive funds ($7.6 billion).
Dimensional Fund Advisors, known for its factor investing approach, also had strong inflows, totaling $4.3 billion, primarily as a result of inflows into active funds.
State Street Global Advisors’ SPDR funds led in total outflows, losing a net $8.6 billion, primarily in passive funds, followed by Franklin Templeton Investments (-$1.8 billion) and Invesco (-$918 million), both experiencing outflows primarily in actively managed funds.
Overall, this January was a disappointment for asset flows into funds. Net inflows of $39 billion were dwarfed by inflows in January 2018 ($132 billion) and January 2017 ($63 billion). Moreover, inflows over the 12 months ended Jan. 31, 2019, totaled less than inflows in the past two Januaries, at $56 billion.
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