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Investors Continue to Favor Taxable-Bond Funds

Taxable-bond funds led all groups in terms of flows in September, but interest in U.S. equity funds bounced back.

  • Estimated long-term flows were $28.2 billion, as U.S. equity funds rebounded with $10.6 billion of inflows and taxable-bond funds led all groups with $20.9 billion, while international equity demand remained light with about $850 million.
  • Vanguard led all families with $16.5 billion in inflows, the firm's strongest showing since January.
  • Flows are more strategic and less performance-driven. Core funds continue as the most popular categories. Three of the four top Morningstar Categories by flows in September were Core strategies: large-blend, $9.1 billion; intermediate-term bond, $6.1 billion; and foreign large-blend, $3.9 billion.
  • Passive funds collected $42.0 billion of inflows and active funds lost $13.7 billion to outflows.
  • Outflows have quietly hammered allocation funds, losing $5 billion in September alone and nearly $29 billion year to date.

It appears 2018 will be the third consecutive year that taxable-bond funds receive the greatest inflows among Morningstar's eight U.S. category groups. Investors shoveled $20.9 billion into taxable-bond funds in September, nearing $189 billion during 2018. That's about half of 2017's $390 billion calendar year total, though it's nearing 2016's $196 billion total.