June 28, 2019

Investors Turn a Cold Shoulder to Large-Cap Funds but Embrace Large-Cap ETFs

by Tom Roseen.

Equity mutual funds (including ETFs) have handed back some $49.1 billion year to date through the week ended June 26, 2019. The large-cap funds classification, handing back the largest sum of the equity funds subgroup, witnessed net redemptions of $9.0 billion, bettered by global equity funds (-$8.4 billion) and sector-financial/banking funds (-$6.5 billion).

For the fund-flows week ended June 26, small-cap funds were the pariah of the domestic equity funds universe, handing back $1.6 billion, while large-cap funds suffered net redemptions of $832 million. Interestingly though—if we break out fund flows by product type—we see that investors appear to be turning their backs on large-cap mutual funds, while embracing large-cap ETFs.

For the most recent fund-flows week, large-cap funds experienced net redemptions of $3.6 billion—their twentieth consecutive week of net outflows. Meanwhile, large-cap ETFs attracted $2.8 billion, their third consecutive week of net inflows.

Large-cap funds are comprised of the following domestic Lipper classifications: Large-Cap Growth Funds, Large-Cap Core Funds, and Large-Cap Value Funds, but the group does not include Lipper’s S&P 500 Index Funds classification.

This trend has been present for several years. While large-cap ETFs have attracted net new money each year since 2010, large-cap funds have been in net redemption territory in eight of those 10 years, witnessing net inflows only in 2013 and 2014.

Year to date, large-cap funds have handed back a net $32.1 billion despite sporting a year-to-date return of 11.85% through the week ended June 26, 2019. Meanwhile, large-cap ETFs attracted $23.1 billion for the same period, posting an 11.00% return, slightly underperforming their actively managed large-cap fund counterparts. That said, in the 10 one-year return periods shown, large-cap ETFs have outperformed their large-cap fund cousins in eight of those years.

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