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Despite a stock market hitting record highs throughout the year and bond yields remaining near historically low levels, U.S. investors continue to favor bond and money market funds over equity funds, especially actively managed stock funds.

According to Morningstar’s latest U.S. fund flows report, investors withdrew an estimated net $14.8 billion from U.S. equity funds in October while investing an estimated net $75.3 billion in money market funds and close to $50 billion net in bond funds, split 5:1 between taxable and muni funds. The totals include mutual fund and ETF asset flows.

Year-to-date numbers were even more dramatic: Estimated net outflows of $36 billion from U.S. equity funds versus net inflows of $411.6 billion in U.S. bond funds and $443.2 billion into money market funds. Taxable bond funds saw net inflows almost three times as great as net inflows into muni funds.

“Demand for U.S. equity vehicles simply isn’t there…. despite the S&P 500 having gained 23.3% year to date through October,” according to the Morningstar report. “Investors continue to cut risk, with taxable bond and municipal bond funds the long-term groups receiving significant inflows.”  (Money market funds are not categorized as long-term funds.)

More specifically, demand for actively managed equity funds isn’t there.

They experienced more than $204 billion in net outflows for the one year ended Oct. 31, while passive equity funds had net inflows of $222.3 billion.

(Related: Passive Overtakes Active in US Stock-Fund Assets: Morningstar)

Flows into bond funds were not as bifurcated. Actively managed taxable funds saw net inflows of $79.1 billion for the one year ended Oct. 31, while their passive counterparts had inflows almost 2.5 times as much, of $198.4 billion.

The pattern for muni bond funds was the reverse: One-year net inflows of $72.5 billion for active funds and just $9.6 billion for passive funds.

In another indication of risk aversion, investors favored the least volatile funds, primarily taxable and municipal bond funds.

They invested a net $40.4 billion into the quartile of the least volatile funds in October; $334.9 billion year-to-date and $294.2 billion over one year. Muni bond funds collected $85.1 billion year-to-date, setting up for a record year of inflows.

In contrast, investors pulled $14.3 billion from the most volatile funds in October, $114.7 billion year-to-date and $163.9 billion for one-year.

Not surprisingly Vanguard, BlackRock’s iShares and Fidelity were the top beneficiaries of these one-year net inflows for one year, collecting net $168.8 billion, $144.1 billion and $87 billion, respectively.

Three Vanguard bond funds and three Fidelity equity funds led net inflows for the one year period ended Oct. 31:

  • Vanguard Total Bond Market Index Fund, $24.1 billion
  • Vanguard Total Bond Market II Index Fund, $14.3 billion
  • Vanguard Intermediate-Term Bond Fund, $6.0 billion
  • Fidelity Series Total Market Index Fund, $20.5 billion
  • Fidelity 500 Index Fund, $32.4 billion
  • Fidelity Series Global ex US Index Fund, $5.2 billion

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