March 10, 2017

Investors Continue to Shy Away From Domestic Equity Mutual Funds

by Patrick Keon

Domestic equity mutual funds suffered net outflows of $2.6 billion for the fund-flows week ended Wednesday, March 8. The week’s negative flows were nothing new to the group; it was the fifty-seventh consecutive week of net outflows, during which its coffers shrank over $193 billion. Domestic equity mutual funds had annual net outflows in ten of the last eleven years (2013 being the only exception, with net inflows of $79.3 billion), for a total loss of over $776 billion. The negative sentiment for the group has escalated recently, with approximately half the total outflows for the 11-year period occurring during the last two years. Domestic equity funds shed $161 billion for 2015, followed by $224 billion for 2016; these numbers represent the two largest annual net outflows for domestic equity funds since Thomson Reuters Lipper began tracking flows data in 1992. For comparison purposes non domestic equity funds had annual net inflows in eight of the last eleven years and total inflows of over $466 billion for the period.

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Reinforcing a common theme in today’s fund industry, the flows data for domestic equity mutual funds both for this year to date and for 2015-2016 show that all the outflows came from actively managed products, while passively managed funds actually took in net new money. Investor enthusiasm for passively managed domestic products is hammered home by the flows picture for equity ETFs. The group has had annual net inflows for ten of the last eleven years, for total positive flows of $782 billion, with $212 billion coming since the start of 2015.

The largest net outflows for the year to date for individual mutual funds are for three actively managed products of Fidelity Management & Research Company. The largest outflows belong to Fidelity Contrafund, managed by Will Danoff, which has shed over $3.7 billion of assets since the end of 2016. Fidelity Growth Company Fund, managed by Steven Wymer, has seen $2.7 billion of net outflows this year, while Fidelity Low-Priced Stock Fund (which is team managed) is off $1.7 billion. All three of these products are diversified equity funds and are in the following Lipper peer groups, respectively: Large-Cap Growth Funds, Multi-Cap Growth Funds, and Mid-Cap Core Funds.

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