Advisors and strategists who believe that the current downturn won’t be as bad as 2008 and that actively managed funds will outperform passive might want to consider what happened in March.
As volatility reigned supreme in stock and bond markets because of fallout from the COVID-19 pandemic, money rushed into cash equivalent accounts, and out of most other types of funds, both passive and active, according to Morningstar’s latest fund flows report. Only passive U.S. and international equity funds, alternatives and commodities saw net inflows.
Investors pulled $326 billion from mutual funds and ETFs overall in March — more than three times the $104 billion in outflows in October 2008, in the midst of the financial crisis, according to Morningstar. March 2020 outflows accounted for 1.7% of $19.7 trillion in fund assets, a bigger chunk than the 1.5% that exited funds in October 2008.
Most stock and bond markets have since recovered from their lows — the S&P 500 has recovered half its 24% decline to date — due in large part to Federal Reserve intervention and federal aid programs to address the sufferings of individuals and businesses. Whether that rebound lasts and grows or reverses itself remains uncertain.
The “panic dynamic has eased, and markets are more orderly now,” says Scott Knapp, chief market strategist at CUNA Mutual Group. He thinks “the worst is likely over for the markets” but notes “we are not out of the woods yet.”