Funds Enjoy Highest Flows in Nearly 2 Years

Note: This is an excerpt from the Morningstar Direct U.S. Asset Flows Commentary for November 2019. The full report can be downloaded here.

Long-term funds had $55.1 billion of inflows in November, their strongest month since collecting $133.3 billion in January 2018. Money market inflows declined month-over-month to $39.9 billion from $75.7 billion as the Fed's three rate cuts this year may have dented demand. However, with $483.5 billion in year-to-date inflows, this remains by far the best year for money market inflows since the financial crisis. This total also remains well ahead of the $353.6 billion collected in 2019 for all long-term funds.

As usual, taxable-bond and municipal-bond funds led the way with $37.1 billion and $10.1 billion of inflows, respectively. Perhaps in response to lower money market yields, short-term bond funds--taxable and municipal--had their strongest inflows for the year to date. In fact, for taxable short-term bond funds, the $5.7 billion in inflows was their best haul since March 2013. The $1.6 billion for short-term municipal-bond funds was that group's best showing since it collected $1.7 billion in December 2018.

However, after strong inflows in 2018, taxable ultrashort bond funds haven't fared as well this year. They have collected $43.5 billion over the trailing 12 months through November versus $82.3 billion for the prior 12 months.

U.S. equity funds had another month of outflows, although the $2.9 billion was far more modest than the prior month's $14.5 billion. For the year to date, U.S. equity funds had $38.9 billion in outflows despite the S&P 500 index being up 27.6%. It is worth keeping in mind, though, that myriad factors affect fund flows, and some are countercyclical. For example, this year's robust equity market returns likely forced many target-date funds to sell into this rally, trimming their equity exposure in order to keep their allocations in line with their stated percentage weightings.

International-equity funds rebounded significantly with $10.5 billion in inflows in November, the group's strongest month since January. Foreign large-blend funds led the way with $5.9 billion in inflows, followed by $2.5 billion for diversified emerging-markets funds, that group's best showing since collecting $5.2 billion in February.