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3 Surprises in the March Fund Flows Report

Tony Thomas discusses where investors pushed and pulled their money.

Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

Susan Dziubinski: Hi, I'm Susan Dziubinski with As we know, March was not a great month for the stock market, with the S&P 500 down more than 12%, and that's on the heels of a pretty poor February, too. How have investors responded? Here today with me to discuss March fund flows is Tony Thomas. Tony is a senior analyst in Morningstar's manager research group. Tony, thanks for joining me today.

Tony Thomas: You're welcome, Susan.

Dziubinski: Now let's start with some broad numbers. It was not a pretty March for fund flows. Can you talk in broad terms about what we saw?

Thomas: It was a tough month for long-term funds. Investors pulled $326 billion from those long-term funds, and that's 3 times the amount of October 2008. Now, to give that a little bit of context, though, the damage was sort of equal across those two months. The March outflows were about 1.7% of the total net assets at the end of February. And back in 2008, just as we were in the global financial crisis, it was about 1.5% of total assets. So similarly damaging on that front, but again, 3 times the amount in dollar terms of what it was in October 2008. 

Dziubinski: And that's maybe disappointing but not really that surprising. But there were some surprises when you dug into the numbers as you did. One of those actually that was surprising was how relatively well U.S. equity funds did in terms of fund flows, considering how terrible the U.S. stock market was in March.

Thomas: Right. It is surprising. When I took a look at this data for the first time, I was shocked to see that there were actually some modest inflows of about $10.5 billion in the U.S. equity funds in March. Now, a lot of that went to passive funds like the SPDR S&P 500 ETF, which had had record outflows the month before, but then it saw record inflows in March. So passives took in $41 billion in March, but actives lost $31 billion. And that's been a long-term trend for those funds. The March outflows were actually roughly equivalent to the outflows that they had in January, even before the sell-off began. And they've been in outflows for about 90% of the months of the last 10 years. That story is just ongoing and to be clear, it wasn't particularly bad, but it's just been bad for active equity funds for a long time.

Dziubinski: Right. Passive sort of saving the day there in March for that group. Now, another surprise would be the magnitude of the outflows that we saw in March for bond funds.

Thomas: Right. Both taxable- and muni-bond funds had record outflows for the month, and they were significant. I mean, very substantial. Now, to be fair, they've had a very long streak of good inflows--really going back to the financial crisis. But both taxables and munis had had inflows for over a year. In taxable, they had $479 billion of inflows in the previous, I think, 14 months going into March, but then in March had $240 billion of outflows. So almost half of that going out the door in March. Similar damage in munis as well. So that was very surprising to see, and that affected a lot of fund families going forward.

Dziubinski: That's another one of the surprises that we discovered in the numbers for March was how fund families that maybe had been doing well really did experience some outflows.

Thomas: They did. The bond-fund outflows really hit firms like Fidelity and Pimco. Some of that might've been expected, but rather interestingly, it affected Vanguard as well. They're the behemoth asset manager out there, but they had $37 billion of outflows last month, and that's rare for them to have monthly outflows. That's only the fifth time since 2000 that the firm has had monthly outflows from its long-term funds. To be fair, that's only a drop in the bucket. I think they have $4.5 trillion of long-term assets. But nonetheless that just shows the extent of the damage that was done last month. 

Dziubinski: Tony, thank you so much for joining us today and giving us a little bit of an update on what investors did in March, and we'll see what April brings.

Thomas: Indeed. Thank you. 

Dziubinski: And for those of you who are interested in digging into Tony's report, it appears in its entirety on Thanks for joining us today. I'm Susan Dziubinski. Take care.

Susan Dziubinski does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.