Passive funds see big inflows in April

Investors yank money from stock funds in time to miss May rally

May 26, 2016 @ 3:12 pm

By John Waggoner

Assets in exchange-traded funds grew 1.7% in April to $2.2 trillion, but investors continue to hate stocks: April's big winners were bonds.

Cerulli Associates estimates that investors poured $3.1 billion to bond ETFs in April and yanked a net $3.7 billion from stock ETFs. Total ETF assets grew 1.7% in April, to $2.2 trillion.

The trend held throughout the mutual fund industry. The Investment Company Institute, the funds' trade group, estimates that a net $11.4 billion fled stock funds and ETFs from March 31 through April 27. Bond funds, in contrast, saw net inflows of $25.1 billion.

The S&P 500 gained 0.39% in April, versus a 0.9% loss for the Barclay's Treasury 5-7 year index.

At least investors were leaning toward low-cost bond funds. Morningstar, the Chicago-based investment tracker, says that money continued to pour into passively managed open-end funds in April. Long-term passively managed funds saw inflows of $10.4 billion, according to Morningstar estimates, while long-term actively managed funds saw inflows of $16.5 billion. Actively managed funds still have an 80% market share, Morningstar reports.


Cerulli's analysis shows that advisers are behind the push of money toward low-cost, passively managed bond funds. Currently, about 60% of advisers use taxable fixed-income funds, rather than garden-variety open-end bond funds, according to Cerulli. Another 16% plan to use bond ETFs the next 12 months.

The problem for asset managers: ETFs are far less lucrative than open-ended funds, and price pressure from ETFs is squeezing their profit margins. “Asset managers expect manufacturing fees to compress at a faster rate than advice fees,” according to Cerulli's latest report. To make up for their losses, managers are increasingly offering digital advice platforms to wealth management firms.

Despite the May market rally, investors continue to flee stock funds, according to ICI estimates. Combined estimated stock outflows in the three weeks ended May 18 were $24 billion. Combined inflows to bond funds were $14.7 billion.


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