July 14, 2019

Domestic Equity Mutual Funds Revert to Their Losing Ways

by Pat Keon, CFA.

Domestic equity mutual funds suffered net outflows (-$2.6 billion) for the twenty-second consecutive week for the fund-flows week ended Wednesday, July 10. During this run, more than $87 billion has left the coffers of the domestic equity mutual funds group. The asset group started the year on a positive note with net inflows during each of the first five weeks of the year, for a total intake of $9.2 billion. This five-week streak of net inflows was the longest positive streak for the group since another five-week run during the second quarter of 2014.

The negative investor sentiment toward domestic equity mutual funds has been long-standing. The group has experienced annual net outflows in 13 of the last 14 years, during which time approximately $1.2 trillion has left. Investors appear to have replaced mutual funds with ETFs for domestic equity stock fund investments. During this same 14-year time period, domestic equity ETFs have had annual net inflows in 13 of the 14 years, for a total net positive flow of slightly more than $992 billion.

The lion’s share of the net outflows for domestic equity funds this year have come from the diversified equity fund peer groups (-$55.1 billion). The largest individual net negative flows among those peer group are attributable to Fidelity Contrafund (-$8.3 billion), American Funds Growth Fund of America (-$2.6 billion), and Fidelity Low-Priced Stock Fund (-$2.4 billion). There have been some positive flows on this front though, as Fidelity Series Total Market Index Fund (+$17.5 billion), Fidelity 500 Index Fund (+$15.3 billion), and Vanguard Total Stock Market Index Fund ($12.4 billion) all have taken in significant amounts of net new money this year. These net inflows all belong to passively managed index products, this taken in conjunction with the aforementioned equity ETF fund flow data seems to provide supporting evidence to investors favoring passive management over active for equity investing.





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