A recent article in Morningstar.com offers insights regarding industry claims that investors are “fleeing active funds in droves,” but concludes that the outlook isn’t as bleak as some might suggest.

  • Citing reporting from a recent piece in Barron’s, the article explains that some of the outflow is attributable to institutional investors who “have been shifting to unregistered collective accounts that replicate a fund’s strategy, but at a lower cost.” While these would be counted as redemptions (outflow), it explains, there is an offsetting inflow to collective investment trust that is overlooked.
  • According to Morningstar, the Barron’s article focuses largely on trends among active U.S. equity funds, “which have been hardest hit from incursions by passive funds. But that trend doesn’t hold to the same degree in other asset classes,” the article points out.
  • Even after accounting for fee differences, the article reports that among active U.S. stock funds, “there’s evidence that investors continue to reward funds that have delivered high performance and punish those that have fallen short.” This holds true even for more successful funds.
  • The article suggests that outflows are “part of a larger structural shift toward indexing and wider diversification; this reflects broader currents, including changing advice practices.”
  • A large share of U.S. active fund outflows is going to “winning large-growth mutual funds,” the article reports.

Related: Amazon and JPMorgan Chase: Americans’ Friend or Foe?

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