June 15, 2018

Passively Managed Funds Continue to Outdraw Actively Managed Funds Year to Date

by Tom Roseen.

Year to date through May 31, 2018, mutual fund investors injected a net $260.3 billion into the funds business (including ETFs). The taxable fixed income macro-group (excluding world taxable fixed income funds) attracted the largest draw for the year to date, taking in a net $84.1 billion, followed closely by developed international markets funds (+$67.8 billion). During the first five months of the year sector equity funds (-$2.9 billion) witnessed the only net redemptions of the macro-groups.

From a passively versus actively managed funds perspective we saw that actively managed funds attracted a net $70.4 billion year to date, while their passively managed counterparts took in $189.9 billion.

Passively managed domestic equity funds, comprising U.S. diversified equity funds, sector equity funds, commodities funds, and alternatives funds, took in the largest net draw (+$75.3 billion) year to date. Passively managed world equity funds (+$58.0 billion net)—comprising developed international markets funds and emerging markets funds—and passively managed taxable fixed income funds (both U.S. and world, +$56.6 billion) took in the second and third largest amounts.

On the active side of the ledger investors continued to embrace taxable fixed income funds (injecting a net $42.4 billion year to date) and world equity funds (+$33.5 billion) while being net redeemers of actively managed domestic equity funds (-$44.2 billion). Whether it was because of offering availability or investor preference, investors continued to prefer actively managed mixed-asset funds (+$17.3 billion net) and municipal bond funds (+$6.1 billion) over their passively managed counterparts (-$1.4 billion and +$1.4 billion, respectively).

While the passive-versus-active trends generally continued in May, some subtle and not-so-subtle differences were observed. Domestic equity funds continued to be the pariah of the actively managed subgroup, handing back $8.2 billion for the month, while their passively managed counterparts took in a net $29.3 billion. For the month money market funds (+$66.9 billion) were the primary net attractor of investor assets as investors did some handwringing over geopolitical and trade war issues. The world equity funds macro-group experienced the largest trend change, with actively managed world equity funds attracting some $3.7 billion net, while their passively managed counterparts handed back $105 million for the month. In the domestic equity group we noted that for the month of May investors gave actively managed sector equity funds (-$1.6 billion net) the cold shoulder while embracing their passively managed counterparts (+$3.1 billion). The opposite was true for commodities funds, where actively managed commodities funds attracted some $827 million net and their passively managed cousins handed back $706 million.

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