While volatility riled global markets in 2018, inflows into ETFs and mutual fund industry decelerated to their slowest pace since 2011.
According to Morningstar data, global net flows into exchange traded products and mutual funds slowed to $606 billion 2018, compared to the $2 trillion for 2017.
Breaking down the various categories, money market-related funds experienced their best year since $2008 with inflows of $331 billion. Meanwhile, for the first time since before the financial crisis, Asia enjoyed its strongest regional long-term flows of $169 billion, supported by an intervention from the Bank of Japan.
“Amidst an equity market correction and concern over credit markets, risk aversion was most evident among fixed-income funds,” Kevin McDevitt, senior analyst and author of the Morningstar Global Fund Flows Report, said in a note. “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.”
Additionally, U.S. continued to lead major regions, bringing in $459 billion in index fund flows, Asia saw about $117 billion in passive flows and European investors funneled $80 billion into index funds. Overall, passive funds maintained their popularity as investors plowed $695 billion into passive index funds over 2018 at the expense of active strategies, which saw $87 billion in outflows.
Equity funds still attracted $352 billion in inflows as investors grew more strategic with their investment decisions, despite the experiencing their worst calendar-year since 2008. In contrast, equity funds saw $604 billion added for 2017.
Fixed-income funds only brought in $156 billion in 2018, its worst showing since 2013 despite the heightened volatility and shift toward safety, compared to the huge $891 billion in inflows for 2017. Investors cut credit risk and looked to the relative safety of short-duration vehicles in light of increasing interest rate risk as the Federal Reserve sought to normalize interest rates in the late economic cycle.
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