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Commentary

Equity Funds Experience Outflows as Investors Cut Risk

Last month, U.S. open-end funds and ETFs experienced their greatest outflows since August 2015.

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: SPDR S&P 500 ETF (SPY),  iShares Core S&P 500 ETF (IVV),  Vanguard Institutional Index (VINIX),  Invesco QQQ (QQQ), and Vanguard Total Stock Market Index (VTSMX). Those five funds combined for $14.7 billion in outflows.

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.  T. Rowe Price Small-Cap Value (PRSVX) led that group with about $660 million in estimated inflows.

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. 

 

Kevin McDevitt has a position in the following securities mentioned above: IVV, VINIX. Find out about Morningstar’s editorial policies.