Figures from Morningstar suggest 2018 was a tough year, though there were bright spots in certain areas
Morningstar has released the results of its seventh annual Global Fund Flows Report, which examined fund flows for mutual funds and exchange-traded products in 2018. The report covers assets reported by over 4,000 fund groups across 85 domiciles, including more than 95,000 fund portfolios and over 240,000 share classes.
Global net flows showed inflows at their weakest since 2011, with US$606 billion registered in 2018 compared to US$2 trillion the previous year. Money market funds saw inflows of $331 billion, marking their best year since 2008. Asia also had its first year as the strongest region in terms of long-term fund flows since 2007 with US$169 billion.
“Amidst an equity market correction and concern over credit markets, risk aversion was most evident among fixed-income funds," said Kevin McDevitt, senior analyst and author of the Global Fund Flows Report. “Overall, we saw investors become more strategic and less performance-driven when it came to equity funds, while they cut credit risk and sought shelter among short-duration vehicles, choosing to put $331 billion into money-market funds."
While demand for index funds was strong around the world, the US led major regions with US$459 billion in inflows. A strong push from the Bank of Japan contributed to some US$117 billion in passive inflows, while European investors put around US$80 billion in the category. Passive index funds enjoyed US$695 billion in inflows overall, down from the previous year’s US$962-billion record
Long-term active funds, in contrast, saw US$87 billion in outflows, the first year of net redemptions since 2008. Active equity funds were the hardest-hit, shedding some US$153 billion to outflows, followed by US$16 billion in outflows for active fixed-income funds.
With the MSCI All-Country World Index falling 7.7% in 2018, equity funds saw their worst calendar-year returns since 2008. Despite that, they managed to take in US$352 billion from investors — notably less than US$604 billion in 2017, but much better than the registered inflows for 2011 (US$40 billion) and 2016 (US$51 billion).
“This resilience may owe more to the increasing prominence of target-date funds and similar managed portfolio solutions, and the underlying funds used by them,” the report said. “Because such portfolios have fixed percentage allocations to their underlying funds, it's likely that fourth-quarter equity flows were positive in part because of falling stock prices.”
Fixed-income funds generally performed better than equities during last year’s correction. Nevertheless, the category fared worse in terms of inflows; it collected US$156 billion, a steep decline compared to US$891 billion in 2017 and the group’s worst showing since 2013.