Investors Flee U.S. Equity Funds, Run Into Arms of International Fare

February was a roller coaster for markets worldwide, and this volatility was reflected in fund flows. February's flows across all category types amounted to negative $7.7 billion, versus January's flows of positive $128.1 billion.

Specifically, investors shunned U.S. equity in February--not only active funds but passive ones as well. Redemptions of $8.4 billion from passive U.S. equity marked the first monthly outflow for the category since April 2015.

Despite international markets also being down last month, the international-equity category group saw inflows in February. In fact, it dethroned taxable bond, which had enjoyed the largest flows for quite a while, and took the lead with a $22.8 billion inflow overall. The majority of this inflow went to passive funds.

Taxable-bond flows diminished last month to only $5.2 billion. It was the smallest inflow for taxable bond since November 2016.

Among other trends last month:

• Large blend, which used to be among the top-flowing Morningstar categories despite outflows on the active side, landed on the bottom-flowing list last month. This category is usually the beneficiary of passive flows because investors who index tend to prefer large blend (as opposed to growth- or value-specialized) funds. With overall passive flows into U.S. equity taking a dive in February, large blend was the hardest hit.
• Foreign large blend and diversified emerging markets remained among the top-flowing Morningstar categories as investors continued to focus on international equity. Intermediate-term bond continued to be the most popular option in the taxable-bond category.
• High-yield bond experienced outflows for the fifth consecutive month.

Download the complete Asset Flows Commentary here.