Investors pour into bond funds in March

But junk funds get trashed

Apr 12, 2017 @ 1:00 pm

By John Waggoner

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.


What do you think?

View comments

Recommended for you

Featured video


The #MeToo movement and the financial advice industry

Attendees at the Women to Watch luncheon commend the #MeToo movement for raising awareness about the issue of sexual harassment and bringing women together.

Latest news & opinion

Higher estate-tax exemption level could mean less work for advisers

With fewer taxpayers affected by the federal estate tax, the demand for estate planning is diminished.

Stocks plunge, advisers tell clients to hang tight

Though planners encourage calm, some are preparing investors for a correction.

Lightyear Capital's Donald Marron said to be in the hunt for Cetera Financial Group

The veteran brokerage executive, who bought Advisor Group in 2016, owned Cetera once before.

What to watch for next with the DOL fiduciary rule

Much hinges on whether the Labor Department appeals the 5th Circuit decision by April 30.

Social Security benefits losing buying power

Low inflation combined with rising Medicare costs threaten the adequacy of seniors' income.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print