Some Fund Investors Have Veered Off Course. It Could Cost Them

A year ago, I said fund investors ought to double-check their exposure to US stocks. Though US equity funds hadn’t seen huge inflows, the stocks had run up so much that they’d become an outsize share of overall fund assets. Given that, I suggested cutting back in favor of other asset classes that had lagged, like bonds.

Well, turns out you’d have been better off tuning me out: Equity has trounced fixed income in the year since.

Nevertheless, the issue isn’t going away: If anything, fund investors’ allocations look even more askew now than they did when I wrote about this issue last year. To illustrate, here’s the breakdown of fund assets by major asset class as of Aug. 31, 2026:

Around 76% of assets were in stock funds. The good news is that’s still below the all-time high (82% in August 2000), but it exceeds the 30-year average (72%) and marks the highest equity stake since May 2008.

Split Screen

Assets in target-date and target-risk funds—strategies that are popular in defined-contribution plans—haven’t exhibited this kind of skew. The breakdown of those funds’ assets has been stable over the past decade thanks to regular rebalancing.

Rather, the issue is cropping up outside of those funds. To illustrate, here’s a time-lapse of fund assets—excluding target-date and target-risk funds—over the past 10 years.

Stocks recently accounted for 76% of fund assets, up from 68% a decade ago. Moreover, US stocks have become an even bigger piece of the pie, soaking up around 80% of all equity assets versus 76% in 2016.

To put that in perspective, US stocks recently accounted for around 60% to 65% of the leading global equity indexes, a smaller stake than fund investors appear to have allocated to domestic equities in aggregate.

The ‘Coretex’

Something else has also been playing out beneath the surface: a gradual shift away from the “value” and “growth” styles and a big move toward “core.”

It’s been most noticeable in large core, which by itself recently accounted for 30% of all equity assets, up sharply from a decade ago.

What’s been the driving force? Not only have large-cap stocks outperformed small- and mid-cap names, but investors have also poured assets into blend strategies. Here are the cumulative flows to global equity funds over the past decade by major style:

Core has been kind of a vortex, sucking in massive sums ($2 trillion in inflows) from other styles ($1.4 billion in outflows), which has only further accentuated the shift toward global blue-chip names.

Takeaways

Rebalance Stocks and Bonds

Your first priority should be to check your asset allocation and compare those weightings to what you’ve targeted. If the equity/fixed-income mix has gotten out of whack, you should consider rebalancing back to target.

It won’t feel good. You’ll be trimming your winners and padding your losers. But you can take some solace knowing you’re in that position to begin because you notched healthy returns in your equity sleeve, gains you can now salt away to achieve a risk/reward balance more consistent with your goals and circumstances. Also, loftier bond yields should take some of the sting out of such a move.

Look Within Sleeves

You might not want to stop there. As mentioned, it looks like investors are potentially overallocated to US stocks within the equity sleeve. And among US stocks, it’s possible that a combination of market gains and inflows has made large blend a disproportionately large weighting.

To be sure, if you invest the bulk of your US equity dollars in something like a market-cap-weighted index fund, then the lion’s share is going to go into the stocks of large companies. But even the leading total stock market index funds stake around 30% of assets in small- and mid-cap names and maintain healthy stakes in “value” and “growth” stocks alike.

You can X-ray your portfolio on Morningstar.com and see how your mix of stocks compares with something like an all-market index fund.

Assess Your Contributions

Call it a hunch, but I’m guessing some of you are dumping a lot of new money into an S&P 500 fund and calling it a day. Consider the net flows to S&P 500 trackers over the trailing one, three, five, and 10 years ended Aug. 31, 2026.

Look, there are worse things you could do. Those funds are cheap and spread their bets across 500 names. They’re a good way to get exposure to the broad US equity market in one fell swoop. But there’s more to equities than the S&P 500—as I mentioned, there are also small and mid-caps, to say nothing of foreign stocks.

And if you’re putting all that money into the S&P because it’s done so well, it’s all the more reason to reconsider your approach.

Switched On

Here are other things I’m writing, reading, listening to, and watching:

• In case you missed it: Some big changes to fund rules potentially coming down the pike
• “You feel the bond between the two of them as he watches Charlie,” Osberg says. “It’s really quite something.”
• “What I Learned About Asset Pricing” by Pedro Santa Clara
• “I was certainly more prepared for perhaps, you know, Mike the retired schoolteacher or accountant or truck driver,” he said. “But certainly not Mike the five-time Grammy-Award-winning Rock ’n’ Roll Hall of Famer.”
• Westside Cowboy “Dobro”
• “Sicario”

Don’t Be a Stranger

I love hearing from you. Have some feedback? An angle for an article? Email me at jeffrey.ptak@morningstar.com. If you’re so inclined, you can also follow me on Twitter/X at @syouth1, and I do some odds-and-ends writing on a Substack called Basis Pointing.