Morningstar says investors rushed the exits in 2018

Net flows into mutual funds and ETFs were the lowest since the 2008 financial crisis, while money-market funds captured inflows

Jan 17, 2019 @ 1:23 pm

By Jeff Benjamin

Investors ran for cover in 2018, according to the latest data from Morningstar showing last year's level of net inflows into U.S. mutual funds. Net inflows into ETFs were the lowest since 2008.

In a year that saw the S&P 500 Index finish down 4.4%, taking into account dividends,including a fourth-quarter drop of more than 12%, net flows into U.S. funds totaled just $157 billion. Last year's net flows are still huge compared to the $11 billion in net flows from 2008, but pose a stark contrast to the nearly $700 billion in net flows in 2017.

In line with that trend was the increase in assets flowing into the relative safety of money market funds, which saw $162 billion in net inflows, the highest level since 2008, when net flows reached nearly $600 billion.

Morningstar analyst Kevin McDevitt said December stood out as the roughest month of the year for funds.

There were $83 billion in net outflows from mutual funds and ETFs in December, making it the worst month for net flows since the depths of the credit crisis in October 2008, when net outflows hit $103 billion.

"The money going to money-market funds just indicates that investors are cutting risks," Mr. McDevitt said. "In the fourth quarter in general it was happening, as we saw corrections in both the equity and credit markets."

With $43 billion worth of net outflows, taxable bond funds represented more than half of December's net outflows for all funds.

The Bloomberg US Aggregate Bond Index finished 2018 up just one basis point, while Morningstar's corporate bond fund category was down 2.5% for the year.

"Taxable bond mutual funds, which had been the area that had maintained investor loyalty for years, weakened in the fourth quarter," said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.

"Investors are happy to pay up for active management when it's working, but with bonds safety is paramount," Mr. Rosenbluth said. "We've started to see cracks in the taxable bond space as we've seen weakness in bond fund returns."

The two fund categories with the highest net inflows last year were large-blend funds and foreign large-blend funds, each logging more than $91 billion in net flows.

The two funds that saw the most net flows last year were the $327 billion Vanguard Total International Stock Market Index (VTPSX), which had net flows of $52 billion, and the $672 billion Vanguard Total Stock Market Index (VITSX), which had net flows of $49 billion.

Mr. McDevitt attributed the high flows into those two low-cost index funds to the fact they are likely part of a lot of target-date retirement plans that rebalanced late in the year as markets were falling.

"It shows how much things have changed from years ago when investors would chase performance," he said. "With the rise of target-date funds and other managed portfolios, you're seeing less of that kind of performance chasing."

In December, for example, when the S&P was down 9%, the Vanguard Total Stock Market Index fund led all funds, with more than $14.1 billion in net flows.

"Now, poor performance means you get more money into those funds," Mr. McDevitt said. "That's a sea change of conventional wisdom of how investors used to behave."

Total estimated net flows for U.S. fund categories
Total estimated net flow
CATEGORY Dec 2018 1 year Assets
US equity $14,140M $32,388M $7,358B
Sector equity -$17,856M -$25,876M $799B
International equity -$13,079M $87,910M $2,797B
Allocation -$16,497M -$64,276M $1,232B
Taxable bond -$42,997M $125,772M $3,779B
Municipal bond -$191M $11,824M $719B
Alternative -$7,681M -$12,292M $189B
Commodities $812M $1,816M $90B
All Long term -$82,967M $157,266M $16,953B
Money market $57.287M $161,596M $2,999B
Source: Morningstar Direct Asset Flows. Data as of Dec. 31, 2018

0
Comments

What do you think?

View comments

Upcoming event

Nov 20

Conference

Future of Financial Advice

An innovative conference dedicated to improving the client experience by enhancing digital technology, mainstreaming healthcare and optimizing wealth management strategies.The Future of Financial Advice will provide a forum for... Learn more

Most watched

INTV

Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

INTV

Schwab's Jeff Kleintop: Prep for volatility given China trade uncertainties

China could be considered a developed market in five to seven years , according to Jeff Kleintop, chief global investment strategist, Charles Schwab.

Latest news & opinion

TIAA exits the life insurance business

The move is a big deal for RIAs, experts say, since TIAA was one of only a few insurers to offer fee-only life policies.

Advisers step up efforts to help clients manage student loan debt

As some Democrats campaign to wipe the slate clean, financial planners focus on limiting the amount students borrow.

Funding for Reg BI, other SEC advice reform efforts denied in Waters amendment

House likely to approve measure that effectively kills rule package, but it faces uphill battle in Senate

Wall Street lashes out at Sanders' plan to pay off student debt with a securities trading tax

Financial pros argue that a transaction levy will hurt mom-and-pop investors along with investment houses.

GPB paid B-Ds and reps steep commissions to sell troubled private placements

GPB paid commissions of 9.3%, or $167 million altogether, on the firm's private placements.

X

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 investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

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

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print