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Fund Spy

Investors Show Willingness to Buy Untested Funds

Looking at 10 years of fund flows through the lens of volatility.

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Investor sentiment may be swinging toward risk aversion. The Volatility Index, or VIX, is up more than 8% in July, although it's still down 8.5% for the year. There's certainly enough to make investors nervous, between high asset prices and geopolitical instability. This risk aversion is starting to show in open-end fund flows too, especially within the more-aggressive categories. (We left out exchange-traded funds for this analysis because they sometimes are used more as trading vehicles than open-end funds.)

High-yield bond funds had nearly $500 million in June outflows--the category's first net outflows in 10 months. Once-popular bank-loan funds are seeing an even greater exodus with about $6 billion in second-quarter outflows. The shift shows in U.S. small-cap equity funds too. Small-blend funds had nearly $800 million in June outflows while small-growth funds had an even greater $1.3 billion in outflows with about $4.2 billion migrating in the second quarter overall.

Kevin McDevitt does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.