Some fund managers see heavy outflows despite solid performance gains

Several crushed the S&P 500, but still saw investors yank billions from their funds.
DEC 27, 2017

In the list of "Really unpopular occupations of 2017," active mutual fund managers rank somewhere below journalists and gravel sorters. Want an example? Consider Fidelity Contrafund (FCNTX), run by Will Danoff since 1990. The fund is up 32.5% this year through Tuesday, according to Morningstar Inc., beating both the Standard & Poor's 500 stock index (22.11%) and the average large-company growth fund (27.8%). And how have investors reacted? They yanked an estimated $9.1 billion from the fund this year through November 30. Contrafund is hardly alone. T. Rowe Price Growth Stock (PREIX), up 33.9% during the same period, has watched an estimated $5.9 billion hit the exits. And Vanguard Capital Opportunity (VHCOX), which gained 29.6% this year, waved goodbye to an estimated $1.9 billion. It's not just actively managed growth funds that are getting redeemed. Among the most unpopular high achievers: • Wasatch Emerging Markets Small Cap (WAEMX), up 35.2% this year vs. 29.6% for the average emerging markets fund. Investors have pulled an estimated net $196.1 million from the fund this year. • Artisan International Investor (ARTJX), up 30.2% this year, watched $2.5 billion leave. • Vanguard Wellington (VWELX), which gained 14.5% compared with 13.1% for the average moderate allocation fund, saw an estimated outflow of $2 billion. Redemptions are not necessarily bad for a fund, and some managers argue that it forces them to prune their holdings periodically. "It's not a bad thing," said Mr. Danoff. "On the margin, it makes you sell things you don't have as much conviction about." The overwhelming trend for the past few years has been against actively managed funds, no matter what kind. Actively managed U.S. stock funds have been clobbered by redemptions: Morningstar estimates a net outflow of $212.7 billion for actively managed stock funds in the 12 months ended November, while passive funds have welcomed $248.4 billion in net new assets. Of course, some funds that get hit with high redemptions deserve it. Catalyst Hedged Futures Strategy (HFXIX), for example, has lost 22.5% this year, and sent $1.5 billion in net cash fleeing. Snakebit Third Avenue Focused Credit (TFCIX), down 21.7%, has seen $241 million head for the hills as the fund winds down operations.

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