Investors Prefer Bonds

Despite expectations of rising rates, taxable bond was once again the most popular category group in September with $34.9 billion inflows overall, significantly higher than the $27.5 billion it had received in August. In a reversal from the previous month, passive taxable-bond flows surpassed active ones: $20.5 billion versus $14.4 billion.

After sustaining a $4.2 billion outflow in August, sector equity enjoyed a $10.5 billion inflow in September, driven by the real estate Morningstar Category (and one recently launched fund in particular, Vanguard REIT II Index VRTPX). International equity received diminished flows ($9.8 billion compared with $16.1 billion the previous month), following some unrest in Europe sparked by Brexit news and the call for Catalan independence from Spain.

U.S. equity remained in outflow territory, but the September outflow was much smaller than the August one.

Intermediate-term bond was once again the undisputed leader in terms of flows for Morningstar Categories last month. Foreign large-blend remained in second place, unchanged from the previous month. Real estate, a newcomer, stole the third place from diversified emerging markets, which did not make the top five.

Other trends in September included:

• Large growth and large value had the largest outflows last month and were joined on the bottom-flowing list by an equity-heavy allocation category, world large stock, and mid-cap value.
• PIMCO was the leader on the active side with a $3.2-billion inflows. Fidelity, Franklin Templeton, and T. Rowe Price sustained outflows from their active funds.
• Vanguard was still the undisputed leader on the passive side, with BlackRock/iShares in second place and Fidelity becoming a stronger contender after multiple rounds of fee cuts.

Download the complete Asset Flows Commentary here.