December stock flows highest since April 2000

And passive once again clobbers active

Jan 19, 2017 @ 12:58 pm

By John Waggoner

Stock funds are back in fashion, but stock fund managers are about as popular as suits of armor.

Investors poured an estimated net $27.8 billion into U.S. stock funds in December, the most since April 2000, according to Morningstar Inc. Another $6.5 billion flowed into international funds.

December's flows are a reversal from most of 2016, when U.S. stock funds saw net outflows for the first 10 months of the year.

Active fund managers have no reason to celebrate, however: Investors yanked $23 billion from active funds while lavishing $50.8 billion on passive funds. Similarly, actively managed international funds saw $8.2 billion walk out the door and $14.7 billion flow to passively managed funds.

Things only look worse for actively managed funds for the full year. Index funds took in a record $504.8 billion last year, versus $418.5 billion in 2015. In 2016, investors pulled $340.1 billion from actively managed funds.

In a surprise development to no one, Vanguard saw the most inflows in 2016, with a net $277 billion in new cash. iShares came in second providers, with $140 billion, and SPDR State Street ran third at about $55 b billion in net new money. Fidelity's passive offerings were fourth, with $37 billion.

Among active fund providers, the American Funds saw a modest outflow of $4.9 billion, while Franklin Templeton saw $42.5 billion take a hike.

Investors also took a pass on alternative funds in December, selling a net $4.4 billion in 2016. The most popular fund categories last month:

Bank loan funds, with $5.8 billion in net new cash. The funds invest in variable-rate loans, which should be less susceptible to rising interest rates.

• High-yield bond funds, with $4.2 billion. A rising economy should boost the credit ratings of junk bonds, although rising rates will take some of the shine off of them.

• Foreign large-blend funds, with $2.8 billion. They have to perform better someday.

Investors treated large U.S. growth funds like an annoyed rattlesnake, dumping $11.2 billion in December and $101.9 billion for 2016, Morningstar said. Munis were also about as popular as a cobra: Investors pulled $5.5 billion from long-term national muni funds and another $3.7 billion from short-term munis.

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