Important points
- While stocks rose in the first quarter, returns on government and investment-grade bonds fell slightly, but net inflows into bond funds exceeded that period at $151.8 billion.
- Actively managed exchange traded funds (ETFs) continued to steal market share from much larger passively managed ETFs.
- Flows into emerging market mutual funds and large domestic growth funds went in opposite directions in the latest quarter. Investors were down on money market funds late in the quarter.
Global stock markets extended their gains in 2023 in the first quarter, but bond returns stagnated as government bond yields rose. But you can't tell that by looking at the flow of fund investments this quarter.
Net inflows into exchange-traded funds (ETFs) and mutual funds in the first quarter were $151.83 billion. This is nearly three times the net inflows into equity funds (fund sales minus investor redemptions) of $53.68 billion.
The inflows into bond funds occurred despite slightly lower returns on government and investment grade bonds during the quarter. These returns reflected a 33 basis point (bps) rise in 10-year U.S. Treasury yields to 4.21% in the quarter and a corresponding rise in European government bond yields, all of which led to higher yields on most fixed income instruments. contributed to.
Fixed income returns for the quarter contrasted sharply with strong global equity returns. During the quarter, the S&P 500 Index rose 10.2% and the MSCI All Country World Index rose 8.3%.
Active ETFs increase market share
As they have for more than a decade, ETFs continued to dominate net inflows during the quarter, offsetting continued outflows from traditional actively managed mutual funds, particularly US equity funds.
Quarterly net inflows to U.S. equity ETFs within Morningstar's traditional style and size paradigm totaled $94.6 billion, while investors received $69.6 billion in net inflows from similar U.S. actively managed mutual funds. I pulled it out.
However, actively managed ETFs continue to make inroads into the broader investment landscape. In the first quarter, passively managed ETFs that track predetermined benchmarks attracted net inflows of $118.86 billion, while active ETFs received $57.24 billion.
Quarterly net inflows into the latter category represented nearly 10% of the $576 billion in assets, compared to about 1.8% for the $6.5 trillion passive ETF market and 1% for smart beta ETFs. There is. In other words, active ETFs account for about 30% of all ETF net inflows, even though they make up only 7% of the total ETF market.
Emerging market trends are shining.Big growth, but not that much
The MSCI Emerging Markets Index rose just 2.4% in the quarter, a fraction of the gains enjoyed by developed market stocks. Nevertheless, funds focused on emerging stocks were one of the few stock categories among actively managed mutual funds to experience net inflows.
Actively managed, diversified emerging market equity funds received $4.8 billion in net inflows in the quarter, with funds managed by Fidelity attracting the bulk of that.
Conversely, actively managed funds focused on large-cap U.S. growth stocks suffered net outflows of $31.7 billion in the quarter.
Large, actively managed growth funds like Peter Lynch's Fidelity Magellan Fund were once considered the darlings of the mutual fund industry. But assets in this category have declined to $1.8 trillion while investors continue their steady march toward cheaper ETFs.
Meanwhile, money market funds saw net inflows of $18 billion in the quarter as yields remained attractive. But late in the quarter, investors got fed up and withdrew a net $92.1 billion in March.
