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Investors Cut Risk in October

Monthly fund outflows were the highest they've been in more than three years.

  • October's $29.1 billion in long-term outflows were the greatest since August 2015, which saw $30.3 billion of outflows. These outflows represented 0.15% and 0.22% of long-term assets, respectively. So, while the dollar flows are large, their impact on overall assets is relatively small. The $102 billion that exited long-term funds at the height of the global financial crisis in October 2008 represented 1.4% of assets, or nine times as much as October 2018's outflow, percentage-wise.

  • In contrast with recent history, fixed-income funds were hit much harder than equity. A combined $19.2 billion left taxable and municipal bond funds, while just $2.2 billion fled equity funds. 

  • Taxable bond funds had their worst month since December 2015 with $14.2 billion in outflows, perhaps due in part to September's Fed rate hike. Ultrashort bond funds likely benefited from this hike, though, and collected a record $11.3 billion in inflows. Meanwhile, high-yield bond funds were hit with $7.3 billion in outflows. Municipal bond funds also had their worst month since December 2016. 

  • The allocation-fund rout continues with another $9.0 billion in outflows, the worst month since December 2015. 

  • Active funds had their worst month since December 2016 with $46.0 billion in outflows. Similarly, passive inflows were modest, especially if the sector and leveraged groups are included. Across all four groups, passive collected $16.9 billion. 

October's $29.1 billion in long-term outflows (that is, non-money market mutual funds and exchange-traded funds) showed that investors aren't immune to market conditions. With the Fed raising rates in late September and the S&P 500 falling 6.9% in October, investors turned cautious. The outflows were the most severe since August 2015, the last time the U.S. equity market was in the midst of a correction. Back then, falling oil prices and energy stocks led the decline. Energy stocks are at the tip of the spear once again as oil prices fell into another bear market, but this time around, technology shares are also feeling pain.