Funds Flows Sluggish in August

August was a slow month, with markets relatively flat and no dramatic movement in flows. Both the S&P 500 and the MSCI EAFE returned a barely-there 0.1% for the month. U.S. equity funds continued to bleed cash on the active side. Passive U.S.-equity funds continued to attract investor money, although August’s estimated inflow of $16.4 billion was only half as large as the $33.8 billion they received in July.

The international-equity story is similar: outflows from active and inflows to passive. Although, when digging deeper into the numbers, an important detail comes to light: The total international-equity flow for August consists of an estimated $7.3 outflow from developed markets and a $6.2 inflow to emerging markets.

Taxable- and municipal-bond funds continued to accumulate flows, reflecting investors’ preference for a steady income stream and hinting that most investors are not that worried about rising interest rates. Commodity funds saw a trend reversal in August with a $1.0 outflow on the passive side.

Other notable asset-flow trends include:

• The top Morningstar Category remained unchanged from last month: intermediate bond. Investors' preference for intermediate-bond funds is easy to understand, because short-term bonds don't yield enough and long-term ones have higher interest-rate risk.

• The large growth, world allocation, and Europe stock categories sustained the largest outflows in August.

Access the full Morningstar U.S. Asset Flows Update here.