Mutual Funds

Morningstar Reports U.S. Mutual Fund and ETF Asset Flows for January 2018

Taxable Bond led January

CHICAGO, Feb. 23, 2018 /PRNewswire/ — Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today reported estimated U.S. mutual fund and exchange-traded fund (ETF) asset flows for January 2018.

In January, investors placed $41.2 billion of inflows to U.S. equity passive funds compared with December’s $22.5 billion inflow. On the active front, investors pulled $24.1 billion out of U.S. equity funds, compared with $16.3 in the previous month. Morningstar estimates net flow for mutual funds by computing the change in assets not explained by the performance of the fund and net flow for ETFs by computing the change in shares outstanding.

Asset Flows

Highlight’s from Morningstar’s report about U.S. asset flows for January 2018:

  • Taxable bond was the leading category group in January with $47.0 billion in flows overall, divided almost evenly between the passive and active side. Following taxable bond was international equity with flows of $41.9 billion overall, majority of which went into passive funds.
  • Flows for all category groups totaled $128.1 billion in January, setting a new monthly record. The previous largest flow, $116.2 billion, occurred in January 2013.
  • The Morningstar Category with the highest inflow in January was large blend, despite a $7.3 billion outflow on the active side. Diversified emerging markets and foreign large blend were also in the top Categories but, unlike large blend, with positive flows on both the active and passive side.
  • Among top U.S. fund families in January, American Funds was the leader in active flows with a $7.9 billion inflow. On the passive front, Vanguard continues to be the top fund family, with inflows of $30.4 billion.
  • The active fund with the highest inflow was American Funds Tax Exempt Bond, which has a Morningstar Analyst Rating™ of Bronze, at $2.7 billion. Silver-rated PIMCO Income and Gold-rated Oakmark International followed with inflows of $2.5 billion and $2.2 billion, respectively. Same as the previous month, SPDR S&P 500 ETF was the leader on the passive front with $19.8 billion of flows in January.
  • On the bottom-flowing list in January, Silver-rated Fidelity Contrafund had the highest outflows on the active side of $1.6 billion. Passive funds with the largest outflows included Vanguard Institutional Index and four iShares ETFs.

Excerpts from the report:

  • New Year, Not-So-New Trends in Flows
    Investors started out the year by strongly declaring their preference for passive U.S. equity funds, which saw their largest monthly inflow since December 2016. Far from running away from the U.S. stock market, investors were eager to embrace it and its stable returns—but in the form of low-cost offerings only, it seems.
    “Returns,” in this context, only refers to January and does not include February’s polar plunge, which saw the S&P 500 drop 7% through Feb. 12. It will be very interesting and revealing to see how investors reacted when the February flows data comes out in March. There was nothing new to report on the taxable-bond front. The category received a total inflow of $47.0 billion, almost equally distributed between active and passive. After raising short-term interest rates three times in 2017, the Federal Reserve decided to leave them unchanged at its first 2018 meeting on Jan. 30, which was also Janet Yellen’s last meeting as chairwoman. International equity attracted $41.9 billion, with the majority of those flows going to passive funds.
  • Large blend was the overall top-flowing category in January despite a $7.3 billion outflow on the active side. Investors who switch to passive tend to prefer blend funds because they’re a good middle-of-the-road option between growth and value. Diversified emerging markets and foreign large blend were also in the top five but, unlike large blend, with positive flows on both the active and passive side.
    So was intermediate-term bond. The trend of transferring assets to lower-cost, passive vehicles is continuing to expand to asset classes other than U.S. equity, where it started. Judging by flows, investors have given up on active management for U.S. equity, still find some value in it for international equity, and consider it highly valuable for fixed income. High-yield bond experienced outflows for the fourth consecutive month.
    The Tax Cuts and Jobs Act may have prompted some of the outflows, because it is limiting the tax-deductible amount of interest expenses. High-yield debt companies will be negatively affected by this new provision because their interest expenses are much higher, and not being able to write them off will adversely affect profitability.

 

To view the complete report, please click here.

In January, investors placed $41.2 billion of inflows to U.S. equity passive funds compared with December's $22.5 billion inflow

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About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $195 billion in assets under advisement and management as of Dec. 31, 2017. The company has operations in 27 countries.