Investors Cut Risk in October
Monthly fund outflows were the highest they've been in more than three years.
Monthly fund outflows were the highest they've been in more than three years.
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.
Nevertheless, in contrast with recent history, bond funds fared much worse than equity funds in October. (The allocation-fund rout continued with another $9.0 billion in outflows, the group's worst month since December 2015.) Taxable-bond funds had their worst month since December 2015 with $14.2 billion in outflows, while municipal-bond funds had their worst month since December 2016 with about $5.0 billion in outflows. (Taxable bond funds held $3.0 trillion in Nov 2015. By September 2018 these funds held $3.9 trillion, so the comparison of absolute flows must be understood in this context.)
Taxable-bond flow estimates were thrown off by transfers within Fidelity fixed-income funds (see our full report for details), but the overall trend was clear: Investors cut risk in October. With short-term rates rising, ultrashort funds became increasingly appealing. Ultrashort funds collected a record $11.3 billion. Meanwhile, investors pulled $7.3 billion from high-yield funds, the second-worst month in the past 12. Even though the average high-yield return is up a bit over the past 12 months, investors have pulled about $36.3 billion from such funds, a negative 11.3% organic growth rate.
Despite October's volatility, equity fund flows were relatively resilient. As has been the trend in recent years, core strategies fared best. U.S. equity funds collected $3.6 billion, thanks almost entirely to the $14.5 billion contribution from large-blend offerings, which led all Morningstar Categories. Passive large-blend funds not surprisingly dominated these inflows (more detail below). Similarly, the $6.8 billion deposited in international equity funds owed to the $9.2 billion steered to foreign large-blend funds. Keep in mind that performance for the average foreign large-blend fund has been dreadful, losing 8.2% in October alone.
Download the complete Asset Flows Commentary here. |
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