“The transition from Growth to Value is unusual given the increasing market focus on the possibility of a U.S. economic recession,” Kostin added. “Although our economists believe U.S. recession risk remains low, most client conversations this year have started with the topic, and asset markets seem to be pricing in a more pessimistic outcome than our forecast.”
Kostin attributes the greater volatility to de-risking, which weighed on high-growth stocks that made up most popular active fund positions.
Active mutual funds’ underperformance, coupled with the high fees, has caused investors to dump their holdings in favor of low-cost, passive index ETFs. Year-to-date, long-only equity mutual funds saw $38.1 billion in outflows while ETFs lost $17.6 billion.
Among the most popular stock ETF trades of the year, the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV), which selects stocks based on variances and correlations, along with other risk factors, has attracted $2.4 billion in net inflows so far this year, according to ETF.com. USMV rose 0.3% year-to-date.
The Vanguard 500 Index (NYSEArca: VOO), which tracks the S&P 500 index and comes with a dirt cheap 0.05% expense ratio, saw $2.0 billion in inflows this year. VOO dipped 4.3% year-to-date.
The Utilities Select Sector SPDR (NYSEArca: XLU), which follows the utilities sector, has brought in $1.6 billion in new assets this year as investors turned to more conservative or defensive plays. XLU has gained 6.7% year-to-date.
Max Chen contributed to this article.