2021 Fund Flows Winners and Losers

Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. As 2021 winds down, some fund families did a better job than others at attracting new investors. Joining me today to discuss which families enjoyed significant inflows this year, and which families experienced just the opposite, is Russ Kinnel. Russ is Morningstar's director of manager research and editor of Morningstar FundInvestor.

Hi, Russ. Nice to see you today.

Russ Kinnel: Glad to be here.

Dziubinski: So, let's talk a little bit about flows in general so far in 2021. Were there any notable trends this year in terms of the types of funds that investors were buying?

Kinnel: Overall, we saw a lot of money going into funds across the board--in particular fixed income and equity; core positions like intermediate bond, large blend, were very popular. And then, related to all of that is that passive funds were more popular. We saw about twice as much money go into ETFs as open-end funds, which is not a perfect proxy for passive, but close.

Dziubinski: Sure. Now, Vanguard has sort of been topping the charts this year when it comes to inflows when we look at them every month, with flows going mostly to its index products, is that right?

Kinnel: That's right. So, they're at the heart of two big trends, which is indexes and target-date funds. And so, they're really benefiting from both of that. And I think if you look out over the longer term, I think Vanguard benefits from just its investors generally having a very good experience from their funds. They're good fiduciaries. They treat investors well, and obviously that builds trust over time.

Dziubinski: Now, two other families that have also had a good year in terms of flows are BlackRock and Fidelity. What are investors buying in the case of those two families?

Kinnel: Also passive and target-date. Again, BlackRock has got iShares. Fidelity has its own passive. It's funny to think of passive driving at Fidelity, but that's true. They've come out with a lot of index funds and some target-date funds that invest in their index funds. And so, that's actually been a big growth spot for Fidelity.

Dziubinski: Now, Pimco Income PIMIX is a fund in particular that we've talked about quite a bit this year in our fund flows reports. It's enjoyed pretty strong flows in general this year. What about Pimco as a firm in general?

Kinnel: I think people want income, and Pimco has really got unique resources of managers, analysts, just a very rigorous process, quantitative resources, traders to really deliver good results in their bond funds. Not that they're great across the board, but they're pretty strong. People want income. Pimco Income is a good example of a fund that takes--it's aggressive in order to get a decent yield. But it's smart aggressive. There's a lot of just dopey aggressive funds that just take on a ton of credit risk or emerging-market risk or whatever to pump up yield. But this one is a much smarter fund. We rate its cheapest shares Gold for that reason.

Dziubinski: So, let's talk a little bit about the flip side of this, maybe fund groups that haven't seen very good flows at all this year. First, there's Dimensional Fund Advisor, which converted several funds to ETFs this year. What's sort of been going on there?

Kinnel: Yeah. You can see the conversion to ETFs and some of their other moves show they're well aware that they're in outflows. The reason they're in outflows is they tilt most of their portfolios towards the smaller-cap side as well as the value side. And small value, though it's had a nice rebound the last year or so, over the big picture five to 10 years, is very much out of favor. And so, they've been losing a lot of investors in part to passive funds from iShares or Vanguard that might be more style-neutral.

Dziubinski: Another family that's had a tough time this year in terms of flows is Franklin Templeton. Why do you think that's the case?

Kinnel: Michael Hasenstab's Templeton Global Bond TGBAX is their flagship, and that fund has been in a very severe slump for a number of years. On top of that, they have some boutiques like Mutual Series and Templeton Foreign Equity funds, which have a value tilt. Again, value being out of favor, so a number of things are going against Franklin Templeton at the moment.

Dziubinski: Well, Russ, thanks for your perspective today on what fund flows have looked like this year in terms of which families have been doing well, and which haven't done quite as well. We appreciate your time.

Kinnel: You're welcome.

Dziubinski: I'm Susan Dziubinski with Morningstar. Thanks for tuning in.