Investors Turn to ETFs and Give a Cold Shoulder to Conventional Funds in May

Investors were net redeemers of mutual fund assets for the fifth month in a row, redeeming $129.6 billion from the conventional funds business (excluding ETFs, which are reviewed in the section below) for May. For the fourteenth month running, stock & mixed-assets funds experienced net outflows (-$37.6 billion). And after the Federal Reserve Board hiked its key lending rate on May 4 by an expected 50 basis points (bps) and another 50-75 bps expected on June 15, the fixed income funds macro-group—for the sixth consecutive month—witnessed net outflows, handing back $90.7 billion for May. Money market funds (-$1.3 billion) suffered net redemptions for the second consecutive month.

For the thirty-second month in 33, ETFs witnessed net inflows, taking in $68.0 billion for May. Authorized participants (APs—those investors who actually create and redeem ETF shares) were net purchasers of stock & mixed-assets ETFs for the twenty-third month in 24, injecting $33.5 billion into equity ETF coffers. For the fourth month in a row, they were net purchasers of bond ETFs—injecting $34.5 billion for the month—their largest monthly net inflows since at least September 2009. APs were net purchasers of four of the five equity-based ETF macro-classifications, padding the coffers of U.S. Diversified Equity ETFs (+$43.0 billion), World Equity ETFs (+$5.1 billion), Alternatives ETFs (+$598 million), and Mixed-Assets ETFs (+$378 million), while being net sellers of Sector Equity ETFs (-$15.6 billion).

In this report, I highlight the May 2022 fund-flows results and trends for both ETFs and conventional mutual funds (including variable annuity underlying funds).

Highlights:

• For the fifth straight month, mutual fund investors were net redeemers of fund assets, withdrawing $129.6 billion from conventional funds for May.
• Fixed income funds (-$90.7 billion for May) witnessed net outflows for the sixth month in a row, while money market funds (-$1.3 billion) handed back money for the second month in a row.
• For the fourteenth straight month, investors were net sellers of stock & mixed-assets funds (-$37.6 billion).
• APs were net purchasers of ETFs, injecting $68.0 billion for May.
• And, for the fourth month in a row, fixed income ETFs (+$34.5 billion for May) witnessed net inflows while investors were net purchasers of stock & mixed-assets ETFs (+$33.5 billion).
• Sector equity ETFs (-$15.6 billion) witnessed net redemptions for the first month since October 2020.