Equity Funds Experience Outflows as Investors Cut Risk

Investors cut risk in June 2018 as long-term U.S. open-end funds and ETFs had their greatest outflows since August 2015. While the bulk of outflows came from U.S. equity funds, which lost $20.8 billion to redemptions, they were hardly alone. Sector-equity, international-equity, allocation, alternative, and commodity funds all had net outflows; only taxable-bond and municipal-bond funds had inflows.

June capped the fourth-worst first half for U.S. equity flows over the past 10 years; only 2009, 2015, and 2016 were worse. The bulk of the net outflows were from large-cap funds, with $19.4 billion leaving large-blend funds alone. This was also the largest monthly outflow for large-blend funds in at least a decade.

In a bit of a paradox, the greatest net outflows came from active U.S. equity funds, which had $17.1 billion in net redemptions versus negative $3.7 billion for passive funds. But the greatest flows from individual funds came from index offerings:

This apparent contradiction can be explained by the fact that a few large passive funds had substantial outflows, but the majority (about 70%) had inflows. On the other hand, only about 26% of actively managed U.S. equity funds had inflows, and none of them were substantial.

Other items of note:

• June was a rough month for international-equity funds, as well. They had an estimated $9.8 billion in outflows, stemming largely from emerging-markets fund outflows, the worst drawdown since 2008.
• Demand remained strong for ultrashort-bond funds, while investors pulled more money out of high-yield funds.
• iShares and SPDR State Street Global Advisors had negative flows for the month, while Vanguard had its smallest inflows since August 2013.

Download the complete Asset Flows Commentary here.