For the quarter to date through December 14, 2016, investors have collectively injected some $13.5 billion into mutual funds and exchange-traded funds (ETFs). The headline flows numbers are a bit misleading though; equity funds, taxable bond funds, and municipal bond funds have witnessed net outflows of $4.1 billion, $12.0 billion, and $12.8 billion, respectively, while money market funds have taken in $42.4 billion.
Examining the quarter-to-date fund-flows figures even further shows a large dichotomy between conventional fund investors and authorized participants (APs, those institutional investors who contract with ETFs to create or redeem shares directly with a fund, and these investors account for all the ETF net flows). For the quarter mutual fund investors have been net redeemers of fund assets, withdrawing a net $76.5 billion from the conventional funds business (ex-ETFs). Equity mutual funds have witnessed an exodus of investor assets to the tune of $88.3 billion, with large-cap funds experiencing the largest net outflows (-$48.3 billion) of the macro-group. As one might expect given the anticipation of rate hikes by the Federal Reserve Board, taxable fixed income funds and municipal bond funds have also suffered net redemptions—$17.7 billion and $12.8 billion, respectively.
Interestingly, for the quarter so far APs have been net purchasers of fund assets, injecting a net $90.0 billion into ETFs, with equity ETFs (+$84.2 billion) taking in the lion’s share of new money. In contrast to their equity mutual fund counterparts, large-cap ETFs and small-cap ETFs have attracted the largest amounts of net new money of the macro-group, taking in $44.2 billion and $13.2 billion, respectively, for the quarter. Even on the taxable bond ETF and municipal bond ETF side, APs are net purchasers, although they have injected only $5.7 billion and a mere $32 million, respectively.
While the question of whether the disparity between mutual fund and ETF net flows is being caused by a disintermediation from actively managed products to passive products or some uncanny foresight about the possible winners and losers going forward can’t be answered with any certainty, the Q4 trends do match the overall flows trends we’ve seen for 2016, with equity mutual funds experiencing net redemptions of $228.9 billion, while their equity ETF cohorts have seen YTD net inflows of $126.6 billion. On the fixed income side, however, APs and mutual fund investors are in lockstep, with taxable bond mutual funds attracting $35.7 billion year to date and taxable bond ETFs taking in some $73.3 billion net.
