Where Investors Worldwide Are Placing Their Bets

The Morningstar 2016 Global Asset Flows Report analyzes the flows that investors placed in global open-end funds and exchange-traded products during the past year and what these trends reveal about past performance, as well as investor behavior and expectations going forward. The report contains a global overview and a region-specific section delving a little deeper into the U.S., the largest investable market in the world.

Some highlights:

• The United States attracted $288 billion in new flows in 2016, an increase from $260 billion in 2015. Europe, Asia, and Cross-Border, however, saw their inflows diminish compared with the previous year. The fastest-growing region was Asia, followed by Africa, Canada, and Latin America.

• The pattern of flows by category group was very different from 2015. The category groups that received the largest flows in 2016 were fixed income and money market ($412 billion and $196 billion, respectively). In 2015, the top receiving category group was equity, with $346 billion, followed by allocation, with $167 billion. In terms of organic growth rates, commodities grew the fastest at 25.7%.
• After favoring both U.S. and world ex-U.S. equity funds for three consecutive years, investors turned to fixed income in 2016. In a year that brought about Brexit and a surprising result to the U.S. presidential election, bonds were the investment of choice. Investors might have been: 1) looking for less risky assets; 2) trying to position portfolios in anticipation of rising interest rates; 3) selling off equities at the top of a bull market; or all three.
• Vanguard continued to dominate the asset-management industry, followed by BlackRock (and its iShares unit) and Fidelity. The fastest-growing firm in the top 10 was State Street. Generally, firms that expanded their product lines to include exchange-traded products and lower-cost options have benefited, while the ones more focused on traditional active management have suffered (most notably, Franklin Templeton).
• In the U.S., the gap between active and passive flows has never been wider. U.S. index funds received $492 billion in 2016. Their active counterparts, in sharp contrast, saw $204 billion fly out the door.
• The largest discrepancy between active and passive flows occurred in the equity category group, with $390 billion going into index funds and $423 billion oozing out of active funds. Fixed income, on the other hand, received inflows on both active and passive fronts worldwide.
• ETP assets continued to grow, reaching $3.6 trillion globally at the end of 2016. These types of products are becoming more and more popular in a climate where the high growth rates of years past are becoming legend and investors are increasingly sensitive to fees, to the point where they are dropping more-expensive funds and buying lower-cost options.

Download the full 2016 Global Asset Flows Report here.