Amid the bouts of market volatility and pullbacks, exchange traded fund investors don’t seem to be as enthusiastic about diving back as they use to be.
Net inflows into U.S. mutual funds and ETFs for the first 11 months of the year declined to $237 billion, or 62% year-over-year for the same period, the steepest decline since 2008, the Wall Street Journal reports.
In comparison, asset managers brought in a record $629.5 billion in net flows for the same period in 2017, marking a boom year for the industry.
“This year is going to be a blow to the 10-year average without a doubt,” Morningstar analyst Kevin McDevitt, told the WSJ, referring to the net flows or the difference between new investor dollars and redemptions for a specified period.
Among the more prominent changes in the industry, new money into low-cost index funds have come to a crawl. Passive index-based funds have attracted trillions in new money at the expense of traditional actively managed funds, but the trend seems to have lost its momentum this year.
For six consecutive years, funds that passively track broad market indices climbed higher, but passively managed funds only brought in $393.3 billion for the first 11 months of the year, or a 37% decline year-over-year for the same period.
“An aging bull market coupled with periods of market volatility, political uncertainty and rising interest rates has led to investors becoming more cautious,” a spokeswoman for Vanguard said.
Meanwhile, active managers long contended that volatility would help them gain an upper hand as they would be better placed to adapt to sudden market changes. However, investors continued to yank money from the funds. For the first 11 months of 2018, active funds experienced $156.2 billion in net outflows, marking the third year of withdrawals for the period of the last four.
The disparity between active and passive continues as December volatility shocked investment confidence. According to the Investment Company Institute, mutual funds suffered redemptions of $56.2 billion for the week ended December 19, its biggest outflow since the week ended October 15, 2008. In comparison, investors added $25.2 billion into ETFs over the same week, especially among corporate insiders, Bloomberg reports.
ICI Chief Economist Sean Collins said in a statement that it reinforced the view that “some investors view periods of volatility as a buying opportunity.”