December stock flows highest since April 2000
And passive once again clobbers active.
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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