January 13, 2020

Equity Funds Suffer Largest One-Year Net Redemptions on Record Despite Strongest Returns Since 2009

by Tom Roseen.

U.S. fund investors were net redeemers of equity funds even though the category posted its strongest one-year return in a decade (+24.05%), withdrawing a net $289.4 billion from the conventional fund business. Meanwhile, they padded the coffers of equity ETFs, adding $97.1 billion. The combined net outflows for equity funds and ETFs (-$192.3 billion) for 2019 were the largest on record.

While the average domestic large-cap fund returned 29.80% in 2019, large-cap funds (ex-ETF) suffered the largest net redemptions for the year, handing back some $170.9 billion of all equity fund macro-groups, bettered considerably by global equity funds, which witnessed the next largest net outflows (-$24.7 billion). Large-cap ETFs (+$68.5 billion for 2019) took in the largest amount of net new money of any of the equity ETF macro-groups, followed by equity income ETFs (+$14.1 billion) and international equity ETFs (+$10.6 billion).

So, the shift away for actively managed equity funds during one of the largest equity market rallies in years is not completely offset by flows into passively managed equity products. In contrast, taxable bond funds took in $319.6 billion in 2019 (with conventional and ETF bond funds taking in $195.0 billion and $124.6 billion, respectively), while their municipal bond counterparts took in a record $96.4 billion for the year and money market funds attracted $540.8 billion. For 2019, the average taxable bond fund returned 7.74%.

In the bond fund space, actively managed bond funds still account for the largest percentage of the assets under management ($4.8 trillion versus $810.2 billion). Corporate investment-grade debt funds and ETFs took in the lion’s share of the net new money on the taxable bond fund side of both universes, taking $159.2 billion and $49.4 billion, respectively.

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