November 3, 2017

Domestic Equity Mutual Funds Continue to Struggle to Attract Investor Attention

by Patrick Keon.

Domestic equity mutual funds have suffered net outflows of almost $132 billion for the year to date. This year’s struggles come on the heels of the group’s having its two largest annual net outflows ever; $228.7 billion and $161.1 billion left its coffers for 2016 and 2015, respectively. The net outflows for 2017 seem destined to qualify as the group’s third largest annual net outflows. Investors have so consistently turned away from domestic equity mutual funds that the group has had net outflows for 90 of the last 91 weeks, with the only weekly net-positive flows being recorded for the fund-flows week ended December 28, 2016. To put this slump for domestic equity funds into perspective, investors have pulled out more than half a trillion dollars net since the start of 2015. Things have not been as gloomy for the non domestic equity mutual fund universe. This macro-group has had net inflows of $35.2 billion for 2017 to date, bouncing back nicely from the annual net outflows of $29.6 billion it suffered for 2016. For the three years prior to 2016 non domestic equity funds averaged net-positive flows of almost $100 billion per year, peaking at $115.1 billion for 2013.

Taking a more granular look at the data identifies that the lion’s share of the net-negative flows for domestic equity funds this year have been concentrated in a handful of peer groups, with the largest belonging to Large-Cap Growth Funds (-$40.0 billion), Equity Income Funds (-$30.8 billion), and Large-Cap Core Funds (-$30.1 billion). Within the Large-Cap Growth Funds peer group Fidelity Contrafund (-$8.8 billion) and T. Rowe Price Growth Stock Fund (-$5.3 billion) have been the hardest hit by the continued negative investor sentiment for domestic equity mutual funds. The largest net outflows for the Equity Income Funds category belong to T. Rowe Price Equity Income Fund (-$3.1 billion) and BlackRock Equity Dividend Fund (-$2.5 billion). The net outflows for the Large-Cap Core Funds peer group are less concentrated than those of the other two, with the largest net-negative flows this year attributable to GMO Quality Fund (-$2.1 billion).

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