U.S. retail mutual fund flows witnessed negative trends in August, with an outflow of $5 billion, observes Citi in its recent research report.

Retail mutual fund

William R. Katz, Neil Stratton and Steven J. Fullerton of Citi favor alternatives over traditionals, given uneven industry dynamics witnessed currently.

August Retail Industry Fund Flows

Analyzing Strategic Insight Simfund’s August U.S. mutual fund AUM/flow data, Citi analysts note that the U.S. retail mutual fund witnessed an outflow of $5 billion, including $27 billion in long-term outflows and $22 billion in money market inflows. The following table amplifies the retail fund flows for August:

August Retial Fund Flows

As is evident from the above table, the long-term flows declined $83 billion month-on-month, led by a $58 billion adverse swing seen in equities and $25 billion decline witnessed in fixed income.

Citi analysts feel that while some seasonal slowness is anticipated, data continues to reinforce the fact that industry and company flow dynamics remain uneven. Besides this, the analysts feel flow traction remains generally elusive for most players despite improving markets YTD and pick-up witnessed in client engagement.

Passive Lost Faster Than Active

Taking a deeper look at the actives, Citi analysts point out that active long-term attrition totaled $13 billion, including $14 billion active equities inflows and $27 billion active FI attrition.

Citi analysts also observed that passive attrition totaled $14 billion, as against inflows of $49 billion witnessed in July. This is evident from the attrition seen in ETF and Index from the following table.

Passive Vs Active Fund Flows

As highlighted in the above table, passive equities attrition totaled $8 billion with ETF attrition $13 billion and index inflows $5 billion.

Focusing on Fixed Income, Citi analysts also point out the passive FI attrition totaled $6 billion, including $7 billion ETF attrition and $1 billion index inflows.

Positive Performers Within Equities

William R. Katz, Neil Stratton and Steven J. Fullerton of Citi point out positive standout performances from Affiliated Managers Group, Inc. (NYSE:AMG) with 17 percent annualized growth, followed by 13 percent and 7 percent annualized growth reported by Artisan Partners Asset Management Inc (NYSE:APAM) and Franklin Resources, Inc. (NYSE:BEN) respectively.

Citi analysts feel the Affiliated Managers Group, Inc. (NYSE:AMG)’s inflows were led by AQR + Yacktman, while Artisan Partners Asset Management Inc (NYSE:APAM)’s volumes got diversified across multiple funds but led by International.

Turning attention to negative outliers, Citi analysts note Federated Investors Inc (NYSE:FII) witnessed 29 percent annualized loss, while Janus Capital Group Inc (NYSE:JNS) and WisdomTree Investments, Inc. (NASDAQ:WETF) had seen 19 percent and 15 percent annualized loss rate respectively.

Favors Alternatives Over Traditionals

Citi analysts structurally favor alternatives with FXCM Inc (NYSE:FXCM) as their top picks among Broker Dealers, followed by TD Ameritrade Holding Corp. (NYSE:AMTD), LPL Financial Holdings Inc (NASDAQ:LPLA) and Charles Schwab Corp (NYSE:SCHW). Among the traditionals, Citi analysts favor Invesco Ltd. (NYSE:IVZ), followed by T. Rowe Price Group, Inc. (NASDAQ:TROW), Franklin Resources, Inc. (NYSE:BEN) and Federated Investors Inc (NYSE:FII).