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Investors Swap Long Funds for Money Markets

U.S. funds experienced their greatest monthly outflows in December in a decade.

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

  • Long-term U.S. funds had their greatest monthly outflows since October 2008 at $83 billion, and inflows for the year were the lowest since 2008. Meanwhile, money market funds had strong December inflows of $57 billion, capping their best year since 2008.
  • December outflows spanned asset classes, with U.S. equity funds the only major group showing significant inflows--$14.1 billion despite December's sell-off. On balance, these inflows went to passive funds.
  • December's outflows mostly came from actively managed funds, with investors pulling a record $143 billion, while passive funds collected nearly $60 billion in inflows. American Funds suffered the most with $8.7 billion in outflows, the fund family's most since December 2011.
  • Taxable-bond funds had their greatest outflows since June 2013, $43 billion, as investors continued to cut credit risk and seek shelter among high-quality, short-duration vehicles. Intermediate-term bond funds got hit hardest with $17.0 billion in outflows, the Morningstar Category's worst month since August 2013.
  • International equity, sector equity, allocation, and alternative funds all had their greatest outflows in at least 10 years in December.
  • IShares dominated December flows with a firm-record $36.1 billion, more than triple that of runner-up Vanguard's $11.4 billion in inflows. Vanguard still came out ahead for 2018 with nearly $161 billion in inflows to iShares' $136 billion.

Long-term U.S. funds had $83 billion in outflows this month, the greatest since the depths of the credit crisis in October 2008 with $103 billion. However, December's outflows were much less severe as a percentage of total assets, representing 0.46% of nearly $17 trillion in total assets, compared with October 2008's outflows representing 1.43% of nearly $6 trillion of total assets. For all of 2018, long-term funds collected $157 billion in inflows, less than half the $350 billion average for 2008-17. It was also the lowest calendar-year total since 2008, falling just below 2016's $166 billion.

December outflows spanned asset classes, with taxable-bond funds faring worst. U.S. equity funds, which saw notable inflows, were the exception. Meanwhile, money market funds had strong inflows of $57 billion, capping their best year since 2008. In 2018, they collected nearly $162 billion versus $594 billion in 2008, and their 5.7% organic growth rate beat any of the long-term categories.

Actively managed funds had record outflows of nearly $143 billion in December. Passive funds generally gained at their active counterparts' expense, though perhaps not to the degree expected, as they collected nearly $60 billion in inflows. For the year, active funds had about $301 billion of outflows, just shy of 2016's $320 billion. That said, active exchange-traded funds continue to grow in popularity and had their strongest year yet with $27.8 billion in inflows. Passive funds collected $458 billion, lagging 2017's record $663 billion. At year end, actively managed funds had overall market share of 61.2% versus 38.8% for passive vehicles.

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About the Author

Kevin McDevitt

Senior Analyst
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Kevin McDevitt, CFA, is a senior manager research analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers primarily domestic- and international-equity strategies, as well as some multi-asset strategies.

Before rejoining Morningstar in 2009, McDevitt was an associate equity analyst and later managed trust portfolios for AG Edwards, which became Wachovia (now Wells Fargo). McDevitt originally joined Morningstar in 1995. He was a mutual fund analyst from 1996 to 1999 and also held positions within the company’s international team, Morningstar Associates, and Morningstar Investment Services.

McDevitt holds a bachelor’s degree in finance from the College of William & Mary and a master’s degree in business administration from Washington University. He also holds the Chartered Financial Analyst® designation.

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