Investors Pulling More Money From Actively Managed U.S. Stock Funds
Traders says outflows have exacerbated the sharp declines in the stock market in 2016
By Corrie Dreibusch
January 13, 2016
Investors yanked more money out of actively managed U.S. stock funds in 2015 than in any prior year.
The outflows represent a stark change in investor attitude toward stocks. After nearly seven years of a bull market, many investors faced their first year in 2015 of negative portfolio returns, a fact that has distressed them, financial advisers say.
More than $169 billion left actively managed U.S. stock funds last year, the most money to be pulled in any year ever, according to data from Morningstar Inc.
“The tone is definitely different (among clients),” said Steve Dudash, president of IHT Wealth Management in Chicago. “For the first time in a long, long time, clients are really concerned. I mean, calling at 6:30 in the morning, wanting to talk about the markets type of concerned.”
These outflows have exacerbated the sharp declines in the stock market in 2016, traders say.
Stocks tumbled around 6% last week, posting their worst first five sessions of any year. Even if money managers were inclined to buy dips in the broader indexes, they have less money to do so.
Money has been flowing out of actively managed U.S. stock funds for years as the rise in popularity of passive funds, such as exchange-traded funds, has grown. But recent years’ flows are dwarfed by the amount of money pulled in 2015. In 2014, investors pulled a net $84 billion, and in 2013, investors took out a net $4.7 billion from actively-managed U.S. stock funds, according to Morningstar. The last year of net inflows to actively managed U.S. stock funds was 2005.
To be sure, some of the money pulled out of these mutual funds likely found its way back into stocks through exchange-traded funds or other passive stock funds. Traders and money managers also say some went to bonds and other remains in cash.
Stock and Mutual Fund investing involves risk including loss of principal. No strategy assures success or protects against loss.
An investment in ETFs involves additional risks such as not diversified, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors. Not suitable for all investors.