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Mutual Fund Outflows Hit One Year High

Mutual Fund Outflows Hit One Year High

Equity and bond fund flows around the US presidential election show how fickle the average retail investor can be. Indeed, in the run-up to the election investors sold equity funds and redeployed capital back into bond funds. In the immediate aftermath of the election the opposite occurred, investors, seeking to capitalise on the market rally ploughed money into equity funds while selling bond funds as yields started to rise (while flows into equity funds were positive the rotation from mutual funds to ETFs continued. Mutal funds saw billions in outflows while ETFs attracted cash for a net overall benefit).

Mutual Fund Outflows Hit One Year High

This trend continued into last week, but ETFs continues to be the main beneficiary of equity fund inflows. According to research by Morgan Stanley, which cites data from EPFR Global, week-on-week long-term mutual fund outflows doubled for the week ending December 7 following the highest level of equity outflows since December 2015. Net mutual fund flows were offset by inflows into bond mutual funds. Overall, week-on-week domestic equity fund outflows were five times worse than the previous week at $10 billion.  For the week ending November 30, long-term equity mutual fund outflows came in at just under $2 billion. Overall, for the past four weeks, long-term equity mutual funds have reported outflows of $15.7 billion compared to equity ETF inflows of $53.6 billion. Bond of mutual funds have not fared much better. For the various classes of bond funds, including hybrid, domestic taxable, international taxable and tax-free, outflows have amounted to $13.5 billion. Bond ETFs, on the other hand, have seen outflows of just $0.2 billion. The one class in the fixed income space that saw inflows was domestic taxable. Mutual funds tracking this class of bond reported inflows of around $4 billion for the week ending December 7.

Mutual Fund Outflows Hit One Year High
Mutual Fund Outflows Hit One Year High

2016 has been a year where the rotation by investors away from mutual funds towards low-cost ETFs has only accelerated as actively managed mutual fund performance continues to deteriorate, and ETF costs fall further. Year-to-date US domestic mutual funds have booked over $150 billion in outflows; that’s compared to around $110 billion of inflows into domestic equity ETFs. Bond mutual funds have fared better, although in comparison to ETF’s they are still lagging. Domestic bond ETF’s have attracted nearly $70 billion in assets year-to-date while bond mutual funds attracted around $50 billion. From the data that emerged over the past four weeks, it is clear that this trend will not continue if rates continue to rise. Since the beginning of November, bond mutual funds have struggled to retain assets while investors appear happy to leave their money with bond ETFs.