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August 24, 2018

Equity Investors Continue to Favor ETFs Over Mutual Funds

by Patrick Keon.

For the fund-flows week ended Wednesday, August 22, equity mutual funds experienced net outflows of $3.0 billion, while equity ETFs took in $4.7 billion of net new money. This marked the ninth straight weekly net outflows for equity mutual funds (during which they’ve seen $29.5 billion leave their coffers) and the sixth straight positive net flows for equity ETFs, for a total intake of $19.3 billion. This trend extended to before third quarter 2018. The graph below illustrates that equity mutual funds suffered annual net-negative flows, and equity ETFs had annual net inflows every year since 2015. Both were on pace to do so again this year. Within this timeframe equity ETFs recorded their record high annual net inflows (+$269.8 billion for 2017), while equity mutual funds suffered their worst ever annual net outflows (-$258.4 billion for 2016).

Taking a more granular look at this year’s data reveals that investor preference within each fund universe breaks down to regions. For the year to date domestic equity mutual funds (mutual funds domiciled in the U.S. that invest at least 75% of their assets in U.S. stocks) have suffered net outflows of $74.4 billion, while nondomestic equity mutual funds (mutual funds domiciled in the U.S. that invest less than 75% of their assets in U.S. stocks) have had positive flows of $62.2 billion. Conversely, domestic equity ETFs have experienced significant net inflows (+$54.0 billion), while the positive net flows for nondomestic equity ETFs (+$14.8 billion) are much more muted than for their mutual fund counterparts.

The hardest hit domestic equity mutual fund peer groups this year have been Large-Cap Core Funds (-$23.0 billion) and Equity Income Funds (-$19.6 billion), while International Multi-Cap Core Funds (+$41.1 billion) have taken in the most net new money on the nondomestic side. For equity ETFs the largest net inflows belong to International Multi-Cap Core ETFs (+$16.1 billion), Large-Cap Growth ETFs (+$12.8 billion), and Small-Cap Core ETFs (+$11.2 billion).

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