For the first time in 14 years, cash flowed out of global funds in 2022. Outflows especially plagued actively managed vehicles. What does that mean for asset managers?

Fund flows show a wide-angle view of how investors and financial advisors behave. They can reveal patterns that reflect investor sentiment and contextualize emerging trends. How do investors react to market swings? Why do investors buy some products and not others?

In this ultimate guide to fund flows, we outline how asset managers can take the pulse of the competition.

Morningstar analysts compared mutual fund flows data from 2003-14 and 2015-18. Some variables consistently lined up with investor preferences:

• Strong performance.
• Low fees.
• Positive firm reputation (measured by metrics like the Morningstar Analyst Rating).
• Recommended by independent rating agencies.
• Consider ESG criteria.
• Indexed.

Do fund flows drive stock prices?

In theory, asset flows should move in the same direction as security prices.

When investors put more cash into mutual funds, asset managers can buy more stocks and bonds, driving prices up for the fund itself. The opposite should also hold. When investors redeem or sell mutual-fund shares, asset managers sell off underlying securities, often depressing prices.

But this rule doesn’t always prove true.

Asset flows sometimes go against security prices. In 2020, U.S. equity funds suffered outflows even when the market surged. The pace of individual transactions can affect how prices respond.

Flows by fund family

Fund family flows roll up all the funds by brand name for a big picture look at competitor performance.

Grouping flows by fund family can illustrate gaps in competitor coverage. You can see patterns in new product launches and pending fund shutdowns.

Morningstar Category fund flows

Category fund flows offer a detailed lens for analyzing investor preferences. The Morningstar category reflects the underlying securities, not the prospectus. In the United States, Morningstar organizes funds into 122 categories that map to nine category groups.

ETF fund flows surge

When the market plummeted, ETF claimed dominance over inflows. In 2022, global open-end funds had $1.28 trillion in outflows, while ETFs enjoyed $754 billion in inflows.

The growth in active ETFs defies the broader shift toward passive investing. Active ETFs give investors the benefits of lower expense ratios, transparent pricing, and easy liquidity, paired with the intervention of asset managers.

Active ETFs resisted the broader shift toward passive investing.

While they hold a smaller market share, active ETFs have posted an annual organic growth rate of over 25% since 2015.

ETF vs. mutual fund flows data

Active funds have lost cash every year since 2015, while indexed ETFs continue to gain market share. This trend accelerated in 2022—index funds are approaching 40% of global assets.

Recent data shows the staying power of ETFs among long-term investors. Indexed funds have shown growth in both high- and low-performing markets.

Alternative funds hold investor attention

Alternative funds diversify portfolios with exposure to different risk factors than stocks and bonds. Some look for growth in any market conditions. Others provide exposure to specific events with their own flavor of risk. Others function like bonds, aiming for small but consistent returns.

Investors can miss out on the defensive benefit of alternative funds by waiting until other investment vehicles suffer before investing.

Alternative funds grew popular in 2020 and 2021 when interest rates were low, and the stock market was booming. In 2022, when asset valuations in the traditional market began to flag, they collected over $25 billion but lost momentum by year-end.

Some alternative funds performed strongly despite a tough 2022, providing shelter from interest rate–sensitive sectors.

Inflows ebb for fixed-income funds

Fixed-income funds logged record-breaking paper losses in 2022. Bond funds posted their worst absolute outflows and organic growth rates in over two decades. When interest rates rise, government bonds lose purchasing power—and their appeal as an investment opportunity.

While the total 2022 outflows of $483 billion are significant, it looks small against the massive $968 billion inflows of 2021 alone, and even smaller compared to the $6 trillion of inflows into fixed-income funds from 2009 to 2021.

Allocation funds continue to slide

Asset allocation funds target a specific percent of equity fixed-income assets for a stable income stream. The category also includes target retirement funds that will rebalance aggressive and conservative investments as owners move closer to withdrawal.

In 2022, U.S. allocation funds continued their long slide with their eighth straight year of outflows. Asset allocation funds offer diversification but don’t allow for personal adjustments, instead locking investors into one risk tolerance level.

Investors stick to their asset allocations

As the equities market rebounded after the 2008 market crash, investors let their stock allocation grow. Bond allocation has held steady in recent years, while money-market holdings have begun to dwindle.

The 2022 downturn proved the mettle of investors. Despite significant outflows, most assets stayed where they were. Overall, today’s investors think long-term about their financial goals.

Trends in active vs. passive fund management

Propelled by an interest in lower fees, investors have sought out index funds at growing rates. Indexed vehicles had $747 billion in inflows in 2022, while their actively managed counterparts shed $1.28 trillion.

Index funds have eroded the market dominance of non-index funds at an annual 1% rate since 2013. In recent years, that pace has accelerated. Indexed assets’ market share increased by 2.3% to 38% in 2022.

Where Can I Find ETF Fund Flow Data?

In Morningstar Direct, asset management firms can dig into the underlying data to contextualize the market. Every month, a Morningstar mutual funds report recaps U.S. trends. Our researchers publish a global retrospective each year.