Investors Embrace Bond Funds, Shun International Equity

The taxable-bond Morningstar category group received the highest inflow of all category groups in May: $15.4 billion. The taxable-bond category saw its inflow almost evenly distributed between active and passive funds.

Municipal-bond funds took second place, with an $8.2 billion inflow. For muni-bond funds, active funds received the bulk of the inflows, which makes sense given the scarcity of passive muni-bond fund options.

On the equity side, U.S. equity remained stuck in its pattern of passive inflows and active outflows. International equity sustained outflows across the board, active and passive, prompted by Brexit concerns. May’s $6.6 billion outflow was the worst for the category group since August 2011.

Other notable asset-flow trends include:

• Flows into commodities spiked again in May, after being on the decline since February. The majority of these inflows, $2.5 billion, went into passive funds, especially precious-metals funds. SPDR Gold Shares GLD was the main beneficiary of the large flows observed at the commodities precious metals category level.
• Even though the international equity group sustained outflows, foreign large blend appeared on the list with highest inflows in May. Even more of a contradiction: Europe stock was among the categories with the largest outflows and foreign large-blend was among the categories with the largest inflows--but foreign large blend is concentrated mostly in Europe. Investors essentially took money out of a category concentrated in European equity and poured money into another category concentrated in European equity.
• High-yield bond flows have been volatile lately, turning negative again in May after three months of inflows, including a $10.8 billion peak in March.

Access the full Morningstar U.S. Asset Flows Update here.