You'd expect that after an eight-year bull market and a massive first-quarter stock rally, investors would be pouring more money into stock funds than bond funds.
You'd be wrong.
Investors yanked an estimated $5.2 billion from U.S. open-ended stock funds in March, according to Morningstar, while pouring $30 billion into taxable bond funds. In the past 12 months, $138.5 billion has fled stock funds, while another $180.6 billion has flowed into taxable bond funds and $19.9 billion has poured into municipal bond funds.
The Standard & Poor's 500 stock index gained 17.2% the past 12 months, including reinvested dividends, and 0.12% in March. The Bloomberg Barclays Aggregate Bond Index edged out the S&P 500 in March, gaining 0.25%, but has eked out a 12-month gain of 3% the past 12 months.
The love for bonds wasn't indiscriminate, and reflected investors' overall caution in the wake of the stock market's big gains since the election. Intermediate-term bond funds were the Morningstar fund category with the highest inflows in March, with $15.7 billion. Junk-bond funds saw the biggest outflows, with $7.5 billion heading for the exits last month.
Investors were rewarded for their love of foreign stock funds in March. They poured $3.7 billion into foreign funds last month, and the MSCI EAFE index rose 2.28%. The past 12 months, however, EAFE has gained just 8.5%.
Passive investing continued to dominate the fund universe, but seems to have slowed down a bit. Actively managed funds watched $5.1 billion depart in March, while $31.2 billion hopped on the passive bus. Nevertheless, some fund families with actively managed funds got some love from investors. Pimco, for example, saw $3.6 billion of new money, and Dimensional Fund Advisers welcomed $3.1 billion. Even Vanguard welcomed $1.8 billion to actively managed funds, although it was a fraction of the $23.9 billion it saw flow to its passively managed funds.
Despite the modest uptick in flows to actively managed funds, Vanguard's gargantuan index funds dominated the flow report in March: Six of the funds with the largest inflows were Vanguard index offerings.
Exchange-traded funds made up for some of the open-ended universe's pessimism on U.S. stocks. (The ETF universe tilts towards U.S. stocks). Morningstar estimates that $17.9 billion flowed to domestic ETFs in March, bringing the total to $187.2 billion for the year. Combined ETF and open-ended flows equals a still-anemic (for a bull market) $48.7 billion flow to U.S. stocks for the past 12 months.
iShares, Vanguard and Schwab were the dominant players in the ETF industry, as they have been for some time. iShares ushered $22.9 billion into their funds in March, while Vanguard rolled out the welcome mat for $12.3 billion. Schwab gained $2.3 billion in net new cash for the month.
Strategic beta ETFs remained popular, as investors poured $4.6 billion into return-oriented funds in March. (These aim to beat their benchmarks, rather than reduce risk). The 12-month total: $62.9 billion.