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Commentary

Passive Funds Set a New High-Water Mark in 2016

A trend toward stock funds over bond funds late in the year did little to help the overall fortunes of active managers.

Investors closed out 2016 by pumping a fresh monthly record of new cash into passively managed U.S. equity funds in December, capping a year that saw a widening gap between the fortunes of actively managed funds and their index-tracking competitors across most major investment categories.

Broadly, investors ended the year favoring stock funds over bond funds, marking a shift from the first 10 months of 2016 where flows had strongly favored bonds over stocks. This changing dynamic came amid growing optimism about the U.S. economy and expectations for continued rising interest rates and inflation.

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