Bond Investors Go Short

Note: This is an excerpt from the Morningstar Direct U.S. Asset Flows Commentary for November 2018. The full report can be downloaded here.

• Long-term flows stabilized a bit in November with about $1.5 billion in outflows after last month's $29 billion in outflows. But overall, 2018 long-term flows will likely finish well below the average from the prior 10 years.
• Bond investors continued flocking to ultrashort vehicles. Money market funds collected $78.7 billion, the most since December 2014, and ultrashort bond funds recorded another record month of inflows with $13.2 billion.
• Equity inflows remained positive despite continued volatility, U.S. equity funds received $11.6 billion, and international equity took in $8.5 billion.
• The news for active funds has been getting worse. Across all categories, active funds had about $57.4 billion in outflows for the month, the most in two years. Active U.S. equity funds got hit the hardest, losing about $18.3 billion, followed by $16.2 billion in outflows for active taxable-bond funds. Perhaps not coincidentally, passive funds collected $55.9 billion, comparable to the amount exiting active funds.
• The big winner here was iShares with inflows of $25.3 billion, likely a firm record and dwarfing runner-up Vanguard's $10.7 billion.

Long-term flows stabilized a bit in November with about $1.5 billion in outflows after last month's $29 billion in outflows. But overall, 2018 long-term flows will likely finish well below the average from the prior 10 years. From 2008-17, annual long-term flows averaged about $351 billion. Through November 2018, year-to-date long-term inflows were about $245 billion. So far, January was the only month in which long-term 2018 flows exceeded $100 billion.

Bond and equity investors went in opposite directions in November. Equity investors were sanguine about risk, but not bond investors. Bond investors continued flocking to ultra-short-term vehicles. Money market funds collected $78.7 billion, the most since December 2014, and ultrashort bond funds recorded another record month of inflows with $13.2 billion.

While there was plenty of volatility in the equity markets, the S&P 500 finished up 2% for the month, and the MSCI ACWI ex USA Index rose about 1%. Whether these slight gains influenced investor behavior or not, equity flows were positive. U.S. equity funds collected about $11.6 billion, with international-equity funds pulling in about $8.5 billion.

Download the complete Asset Flows Commentary here