June's sum of U.S. equity fund outflows, index fund inflows highest since ‘09

$20B gap, timing have analysts puzzled

By Jessica Toonkel

Jul 14, 2011 @ 3:18 pm (Updated 4:20 pm) EST

The combination of flows out of actively managed U.S. stock funds and flows into index funds reached $20 billion in June, the greatest it has been since the market bottom in March 2009.

U.S. investors pulled $19 billion more out of actively managed U.S. stock funds in June than they put in, while U.S. index stock funds saw $1.1 billion in net inflows. In March 2009, when the S&P 500 fell to a 12-year low of 676.53, flows out of active funds and into passive funds combined were $20.7 billion, according to Morningstar Inc. That month, investors pulled $18.3 billion out of actively managed U.S. stock funds than they put in, and passively managed equity funds saw $2.4 billion in inflows.

While there has been a continuing trend of money flowing into passively managed funds from actively managed funds, the amount of disparity has analysts worried.

“These numbers are mind-blowing,” said Kevin McDevitt, a Morningstar analyst. “And this wasn't precipitated by anything.”

Usually one might expect a gap this dramatic in December, when investors are re-allocating their portfolios, but to see it in June is “very surprising,” said Geoff Bobroff, a mutual fund consultant.

“It's a further demonstration of the difficulty that active domestic equity managers are having,” he said.

Big losers among actively managed equity funds in June were the American Funds Growth Fund of America Ticker:(AGTHX), which lost $2.9 billion; the Fairholme Fund Ticker:(FAIRX), and Fidelity Investments' Magellan Fund Ticker:(FMAGX), which both lost $1 billion, and the Davis New York Venture Fund Ticker:(NYVTX), which saw $780 million in net outflows.

Overall, mutual funds saw $4.5 billion in net outflows in June, a sharp contrast from the $22.6 billion in net inflows they saw in May, according to Morningstar. Taxable-bond funds took in $11.9 billion, while municipal bond funds saw $1 billion in net inflows, marking a continued turnaround for the asset class.