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Vanguard Funds Leak $3B in Rare Month of Net Outflows

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What You Need to Know

  • U.S. mutual funds and ETFs saw $77 billion in net outflows last month as stock and bond prices fell.
  • September was only Vanguard's fourth month of net fund outflows in the past decade, according to Morningstar.
  • But the firm reported $642 million of net inflows in September across mutual funds, ETFs and CITs.

The Vanguard Group saw an estimated $3.2 billion in net outflows in its mutual funds and exchange-traded funds in September, led by a rout in bond funds that gave the firm only its fourth month of outflows in the past decade, Morningstar reported recently.

The moves came in a month in which ETFs and mutual funds overall in the U.S. — excluding money market funds — experienced about $77 billion in outflows following meager inflows in August, according to Morningstar.

“Tumbling equity markets and declining bond prices made some investors head for the exits. Investors withdrew $77 billion from U.S. funds in September, their largest monthly outflows since April. Few areas of the market were spared as six of the 10 U.S. category groups shed assets,” Morningstar wrote in its U.S. funds flow report for September.

Soaring interest rates continued to spook fixed income investors, as taxable-bond funds shed $35.8 billion and municipal bond funds saw $14.1 billion exit, the research firm said.

Vanguard saw net outflows in both categories, with more dollars leaving its municipal bond funds, according to Morningstar.

BlackRock’s iShares have “won in the fixed income arena by a wide margin this year” as money flowed into its Treasury funds, giving iShares the overall year-to-date flows lead, $105.1 billion, over Vanguard’s $79.1 billion in inflows through the third quarter, Morningstar wrote.

Fidelity saw more than $3.6 billion in outflows overall in the quarter, while iShares experienced more than $8.8 billion in inflows, according to the firm’s data.

Still, Vanguard reported positive cash flows overall for September, a spokesman with the firm told ThinkAdvisor on Wednesday, noting that Morningstar’s report doesn’t track money market funds and collective investment trusts. In the U.S., Vanguard recorded an aggregate $642 million of net cash inflows across mutual funds, ETFs and CITs, he said via email.

Vanguard doesn’t comment on competitors, the spokesman said, adding the company’s “primary focus is not cash flows but giving investors the best chance of investment success through thoughtfully-designed investment products and accessible, affordable advice.”

Longer term, Vanguard has been inching up on BlackRock’s lead in the ETF market: In August, its Vanguard Total Bond Market ETF (BND) had some $83.8 billion in assets, Bloomberg reported; this made it the largest bond ETF in the world, as it topped the $83.2 billion iShares Core US Aggregate Bond ETF (AGG).

Morningstar also reported that:

  • U.S. equity funds recouped their $6 billion in August outflows with a $7 billion intake in September, with passive large-blend funds continuing to lead the group. The passive large-blend funds collected $36 billion in the third quarter and $124 billion year-to-date through September.
  • Sector-equity funds experienced $14 billion in outflows in September as investors broadly sold off niche offerings. 
  • Alternative and nontraditional equity funds’ long inflow streaks continued, although their intakes were the weakest on an organic-growth basis in nearly two years.

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