June 15, 2018

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

by Tom Roseen.

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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