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Commentary

Active U.S. Equity Funds Remain Also-Rans

Taxable bond and international equity funds enjoyed far more robust asset flows in April than their domestic stock counterparts.

April 2018 asset flows returned to form after the prior month's anomalies. Following two consecutive months of outflows, U.S. equity funds rebounded with estimated inflows of $6.8 billion. That rebound owed to passive U.S. equity funds resuming their dominance over their active counterparts, collecting $18.2 billion in inflows while active funds lost about $11.4 billion to outflows. Overall, trailing 12-month U.S. equity flows remain negative--to the tune of $42.6 billion, or a 0.6% decline.

Core large-blend funds were once again the most popular Morningstar Category by far, with $10.8 billion in inflows. To put this dominance in perspective, large-blend funds took in $14.4 billion for the year to date through April. The second most popular U.S. equity category was mid-cap blend funds, which collected about $200 million over the same period. The most popular fund year to date is  Vanguard Total Stock Market Index (VTSMX) with $19 billion in inflows, followed by  Vanguard 500 Index's (VFINX) $15.1 billion.

International equity funds remained more popular than their domestic brethren, pulling in about $11.1 billion. However, amid a volatile start to 2018, inflows did decline for the third consecutive month. Still, international equity funds enjoy the highest year-to-date organic growth rate, 2.72%, among the major asset categories.

Core foreign large-blend funds took in the lion's share of $5.6 billion, but diversified emerging-markets demand remained strong, with $4.5 billion in inflows. That's surprising given that emerging-markets equity funds have fallen 6.5% on average over the past three months, due in part to greater volatility and a strong U.S. dollar.

Taxable-bond funds fared even better in absolute terms, bringing in $25.3 billion, the second consecutive monthly increase and roughly on par with their trailing three-year run-rate. Ultrashort bond funds, which typically have average durations of less than one year, had the greatest inflows--$5.6 billion--as Federal Reserve interest-rate hikes boosted the yields on offer. iShares Short Treasury Bond ETF (SHV), which took in $2.5 billion in April, has a current SEC yield of 1.75%, although this is lower than the 1.85% for Vanguard Prime Money Market Fund .

A bit more surprising, the average intermediate-term bond fund took in nearly $5 billion in April, even as the typical fund in the group fell 1.93% for the year to date through April due to rising rates. Even more surprising, the long government category collected $3.4 billion, despite losing 2% on average in April alone and 5.3% year to date.

Meanwhile, short-term bonds didn't get much love from investors. Their flows were flat in April (although short-government funds did collect $1.0 billion), despite the average fund being down just 0.37% year to date, far better than the showing for intermediate-term or long-government funds. The same held true for municipal-bond funds. Muni national short funds had that group's greatest outflows ($1.4 billion), despite being down just 0.22% year to date. Conversely, muni-national long funds had less than $300 million in outflows, despite being down 1.7% year to date.

Download the complete Asset Flows Commentary here.   


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