January 25, 2019

Investors Remain Enamored by Passively Managed Funds in 2018

by Tom Roseen.

Passively managed funds (including conventional funds and ETFs) attracted $445.1 billion in 2018, while their actively managed counterparts handed back some $282.9 billion (ex-money market funds) for the same time period. Except for the commodities funds macro-group, investors appeared to prefer passively managed funds for all of Lipper’s broad-based macro-groups, a change from 2017 when investors were as equally enamored by actively managed taxable fixed income funds and municipal debt funds as they were of their passively managed brethren.

In 2018, investors were net sellers of domestic equity funds, redeeming a net $31.1 billion. However, the headline number doesn’t paint a clear picture. Investors’ predilection for passively managed domestic equity funds (+$209.9 billion) was on the rise, while generally investors bailed on actively managed funds (-$241.0 billion). Actively managed U.S. Diversified Equity Funds was the big loser for the year, suffering $190.6 in net redemptions, with large-cap funds accounting for more than half of those net redemptions (-$98.7 billion).

Actively managed world equity funds (-$43.7 billion) also witnessed net redemptions for the year, while their passively managed cousins drew in $123.2 billion. Investors padded the coffers of the passively managed developed international markets funds sub-group, injecting $102.1 billion in 2018, with passively managed International Multi-Cap Core Funds (+$96.4 billion) taking in the lion’s share of those net inflows.

On the taxable fixed income fund side, passively managed funds (+$104.1 billion) handily outdrew their actively managed counterparts (+$10.6 billion), with the passively managed short-/intermediate-term bond funds macro-group (+$95.3 billion) attracting the largest amount of investors’ assets during the year. The same trend applied for the municipal debt funds macro-group, for which passively managed munis took in $5.5 billion, while their actively managed counterparts only took in $913 million.

Because of the market meltdown in the last quarter of 2018, money market funds taking in $203.3 billion for the year were the big winners on the actively managed fund side. The supermajority of all those net flows occurred in Q4 2018, with money market funds taking in $181.9 billion for the quarter.



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