Morningstar Direct SM U.S. Open-End Asset Flows Update

Transcription

1 September 2013 Data through Aug. 31 U.S. Open-End Funds Also inside: Extended tables... 5 Morningstar Direct SM U.S. Open-End Asset Flows Update Bond Investors Not Waiting for the Music to Stop by Michael Rawson, CFA The bloodshed in fixed income continued in August, as mutual fund investors pulled $15.5 billion from taxable-bond funds and $11.8 billion from municipal-bond funds. Since the end of April, investors have pulled $81.9 billion out of bond funds, with taxable-bond funds losing 1.6% percent of beginning assets to outflows and municipal-bond funds losing 6.6% to outflows. Interest rates have climbed all summer, with the 10-year Treasury flirting with a 3.0% yield. All of the other category groups, including U.S. and international equity, saw positive flows, while money market funds gained $20 billion. Estimated Net Flows $Mil* August 2013 YTD 1 Year Assets $Bil Organic Growth Rate % U.S. Equity 1,652 27,764 (31,277) 4, Sector Equity 1,190 18,248 15, International Equity 8,298 95,365 88,084 1, Allocation 3,653 35,453 33, Taxable Bond (15,526) 46, ,877 2,461 (0.62) Municipal Bond (11,798) (31,919) (20,978) 518 (2.18) Alternative 4,210 28,304 33, Commodities 399 4,399 2, All Long Term (7,921) 224, ,238 9,951 (0.08) Money Market 20,092 (59,846) 77,631 2, *Includes liquidated and merged funds. Source: Morningstar Direct Asset Flows Note: The figures in this report were compiled on September 11, 2013, and reflect only the funds that had reported net assets by that date. The figures in both the commentary and the extended tables are survivorship-bias free. Artisan, Calamos and Schwab/Laudus are not included. Important methodology note: Morningstar computes flows using the approach that is standard in the industry: Estimated net flow is the change in assets not explained by the performance of the fund. Our method assumes that flows occur uniformly over the course of the month. Adjustments for mergers are performed automatically. When liquidated funds are included, the final assets of the fund are counted as outflows. Reinvested dividends are not counted as inflows. We use fund-level reinvestment rates to improve accuracy in this respect. We make ad-hoc adjustments for unusual corporate actions such as reverse share splits, and we overwrite our estimates with actual flows if managers are willing to provide the data to us. Please click here for a full explanation of our methodology Morningstar, Inc. All rights reserved.

2 Bond Investors Find a Few Places to Hide Within the taxable-bond group, the amount of outflows from core bond funds is masked by inflows to other categories. The bank-loan category is the clear beneficiary of the Fed s tapering plan as it seems to offer the best of both worlds. If the Fed tightens and rates go up, bank-loan funds will be somewhat immune since they have short durations. Even if the Fed does tighten, it will likely only do so if the economy is improving, a scenario which should result in tighter credit spreads, thus benefiting bank-loan funds. Assets in the category have doubled over the past year. Another bond category with strong inflows is the ultrashort bond fund category, which has become a substitute for money market funds in this environment of ultra-low money market yields. Estimated Flows by Morningstar Category Estimated Net Flow $Mil August 2013 YTD 1 Year Assets $Bil Leading Bank Loan 7,551 46,158 53, Nontraditional Bond 5,002 40,323 46, Foreign Large Blend 4,427 39,527 35, Large Blend 2,936 14, ,294 Ultrashort Bond 2,236 7,671 11, Lagging Intermediate-Term Bond (18,188) (49,308) (9,559) 978 Intermediate Government (4,135) (24,591) (25,105) 106 Large Growth (3,197) (17,684) (39,034) 1,005 Muni-National Long (2,963) (8,776) (7,250) 87 High-Yield Bond (2,940) (7,565) (8,556) 248 Source: Morningstar Direct Asset Flows Strong outflows from municipal-bond funds in recent months rival the strong flows seen in 2011 around the time of Meredith Whitney s high-profile bearish call. While the most recent wave of outflows might be a reflection of a panic over the Detroit bankruptcy filing, it may also be nothing more than a move away from interest-rate risk. Because of the low default rate of municipals, they primarily have interest-rate risk exposure, so outflows from this category are similar in relative size to outflows from Treasury bond funds. Organic Growth Rate = flows / beginning assets 2013 Morningstar, Inc. All rights reserved.

3 Readers often ask us why we choose to report mutual fund and exchange-traded fund flows separately. After all, don t investors use both, and haven t ETFs proved to be more than a fad? ETFs appeal, however, to a slightly different clientele than mutual funds. This difference becomes obvious when looking at emerging-markets flows. ETF investors have been selling consistently for several months, while mutual fund investors continue to buy. ETFs are primarily owned by institutions, while mutual funds are primarily owned by average investors. About 80% of ishares MSCI Emerging Markets ETF EEM was owned by institutions, for example. Investment manager Bridgewater Associates recently owned 80 million shares of EEM, the State of New Jersey Pension owned 23 million, and Goldman Sachs had 20 million. Even mutual funds use the ETF, as Silver-rated Fidelity New Markets Income FNMIX held nearly 2 million shares. Top-10 U.S. Open-End Fund Families Ranked by assets, excluding money markets and funds of funds. Estimated Net Flow $Mil Assets Fund Family August YTD 1 Year August $Bil Market Share Vanguard ,755 64,922 1, Fidelity Investments (802) 7,246 4,694 1, American Funds (1,894) (11,581) (33,429) PIMCO (11,011) (1,776) 27, Franklin Templeton Investment Funds (1,754) 7,510 9, T. Rowe Price (1,455) 5,122 5, JPMorgan 1,863 15,609 22, Dimensional Fund Advisors 1,664 15,101 17, OppenheimerFunds 1,033 12,793 15, BlackRock 530 5,650 5, Source: Morningstar Direct Asset Flows Morningstar, Inc. All rights reserved.

4 Top- and Bottom-Flowing Funds Outflows from PIMCO Total Return PTTRX have been truly remarkable. After finishing 2012 as one of the top accumulating funds, the last four months have seen a reversal of fortune. Assets in the fund have declined by $42 billion since the end of April, $26 billion from outflows and $15 billion from share price declines. In August, investors bought equity funds with Morningstar Analyst Ratings of Gold, including Vanguard Total Stock Market VTSAX. The fund, which charges a rock-bottom 0.05% for exposure to the entire U.S. stock market from megacaps all the way down to micro-caps, is used within Vanguard s Target Retirement Series. Gold-rated Oakmark International OAKIX had inflows of about $2 billion. The fund is up 37% over the past year and is managed by David Herro, Morningstar s International-Stock Fund Manager of the Decade. In addition to bank loans, another popular category for displaced bond investors has been nontraditional bond, and Neutral-rated JPMorgan Strategic Income Opportunities JSOAX has performed well. The fund has taken on a lot of credit risk to blunt the rise in rates and it is a strategy that has paid off. Over the past year, the fund is up 3.7% while the largest fund in the nontraditional category, Bronze-rated PIMCO Unconstrained Bond PUBDX has lost about 1.1%. Nontraditional bond funds give bond portfolio managers free rein, allowing them to take duration and credit bets that might be more common to a hedge fund than a core bond product. Top- and Bottom-Flowing Funds in August Excludes money markets and funds of funds. Estimated Net Flow $Mil Assets $Bil Top-Flowing Funds August YTD 1 Year August Vanguard Total Stock Market Index Fund 2,304 11,904 18, ,051 Oakmark International Fund 2,179 8,211 8,871 21,312 Oppenheimer Senior Floating Rate Fund 1,726 7,441 8,368 15,078 JPMorgan Strategic Income Opps Fund 1,518 6,336 6,650 20,217 PIMCO Short Term Fund 1,369 1,958 1,922 13,582 Bottom-Flowing Funds PIMCO Total Return Fund (7,720) (22,631) (13,941) 251,105 Vanguard GNMA Fund (1,587) (8,793) (8,708) 29,683 DoubleLine Total Return Bond Fund (1,130) 173 5,149 36,758 Vanguard Inflation-Protected Securities (1,067) (11,786) (11,451) 29,506 PIMCO Real Return Fund (833) (5,084) (4,431) 18,403 Source: Morningstar Direct Asset Flows Morningstar, Inc. All rights reserved.

5 Morningstar Direct SM Publishing Date: Page 1 of 6 Morningstar Categories Ranked by Current TNA ($Mil) Rank Name Estimated Net Flow ($mil) Total Net Assets ($bil) Total Return 1-Mo QTD YTD 1-Yr Mkt Sh % Mkt Sh % 1-Mo YTD 1 Large Blend 2,936 3,016 14, , , (2.80) Large Growth (3,197) (5,337) (17,684) (39,034) 1, (1.57) Intermediate-Term Bond (18,188) (32,981) (49,308) (9,559) , (0.66) (2.65) 4 Large Value (140) 3,199 6,984 3, (3.21) Foreign Large Blend 4,427 8,576 39,527 35, (1.97) Moderate Allocation 1,865 4,304 9,474 4, (1.89) World Stock ,416 6, (2.07) World Allocation 1,258 3,174 12,309 12, (1.67) Short-Term Bond 1,891 3,369 17,794 29, (0.18) (0.44) 10 High Yield Bond (2,940) 1,495 (7,565) (8,556) (0.66) Diversified Emerging Mkts 1,644 3,333 29,704 34, (2.87) (8.89) 12 Mid-Cap Growth (671) (1,216) (2,417) (9,264) (1.57) Mid-Cap Blend 675 2,372 8,587 5, (2.90) Conservative Allocation 558 1,470 12,455 16, (1.46) World Bond (1,015) (1,323) 23,216 27, (1.27) (4.95) 16 Small Blend ,920 3, (3.15) Multisector Bond (1,761) (962) 7,434 17, (1.00) (1.06) 18 Small Growth 681 1,414 2,772 (1,140) (1.06) Foreign Large Growth ,658 3, (1.89) Foreign Large Value 703 1,500 4,578 2, (1.81) Mid-Cap Value 778 1,999 6,947 5, (2.91) Bank Loan 7,551 15,763 46,158 53, (0.10) Muni National Interm (2,901) (5,533) (5,907) (1,397) (1.14) (4.27) 24 Nontraditional Bond 5,002 11,959 40,323 46, (0.57) (0.97) 25 Intermediate Government (4,135) (9,069) (24,591) (25,105) (0.45) (3.21) 26 Muni National Short ,979 3, (0.34) (0.90) 27 Inflation-Protected Bond (2,065) (4,843) (14,556) (12,922) (1.35) (7.49) 28 Small Value , (3.59) Muni National Long (2,963) (5,382) (8,776) (7,250) (1.95) (6.87) 30 Real Estate (451) (658) 4,627 4, (6.44) (1.32) 31 Emerging Markets Bond (1,478) (1,730) 3,249 10, (3.29) (10.09) 32 Health 505 1,610 5,667 5, (1.92) High Yield Muni (2,355) (4,225) (7,576) (6,102) (2.73) (8.23) 34 Ultrashort Bond 2,236 3,355 7,671 11, (0.02) Commodities Broad Basket ,384 2, (6.32)

6 Morningstar Direct SM Publishing Date: Page 2 of 6 Morningstar Categories Ranked by Current TNA ($Mil) Rank Name Estimated Net Flow ($mil) Total Net Assets ($bil) Total Return 1-Mo QTD YTD 1-Yr Mkt Sh % Mkt Sh % 1-Mo YTD 36 Long-Term Bond (201) (22) 2,308 5, (1.41) (4.16) 37 Long/Short Equity 2,174 4,236 12,123 14, (1.38) Short Government (274) (1,639) (4,300) (4,679) (0.30) (1.21) 39 Equity Energy 659 1,405 4,705 4, (0.69) Muni California Long (919) (1,701) (2,742) (2,626) (1.81) (6.51) 41 Global Real Estate ,016 3, (4.06) (2.78) 42 Technology (322) (0.53) Natural Res (10) (144) (784) (1,651) (0.15) 44 Foreign Small/Mid Growth ,114 2, (1.33) Muni New York Long (849) (1,365) (2,590) (2,566) (2.19) (7.42) 46 Multialternative 1,893 3,107 6,769 8, (1.06) Muni Single State Long (854) (1,621) (2,470) (2,053) (2.52) (7.46) 48 Market Neutral ,311 2, (0.46) Pacific/Asia ex-japan Stk 24 (39) 1,098 1, (3.36) (6.43) 50 Utilities (87) (28) (109) (722) (4.07) Foreign Small/Mid Value (0.98) Aggressive Allocation (2.10) Equity Precious Metals (1,485) (1,843) (34.93) 54 Europe Stock 844 1, (1.33) Foreign Small/Mid Blend ,397 1, (0.93) Muni Single State Interm (337) (654) (1,059) (948) (1.34) (4.81) 57 Convertibles (697) (1.31) Muni Single State Short (89) (169) (130) (0.90) (2.17) 59 Muni California Intermediate (103) (193) (0.99) (3.73) 60 Multicurrency (241) (679) 14 (169) (1.27) (3.45) 61 Managed Futures ,765 1, (0.90) (3.54) 62 Diversified Pacific/Asia ,659 1, (2.56) Bear Market ,949 6, (19.86) 64 Muni Pennsylvania (249) (449) (700) (683) (2.07) (6.52) 65 Financial (3.70) Muni New Jersey (173) (324) (565) (525) (2.27) (7.05) 67 Muni Massachusetts (167) (366) (645) (551) (2.00) (7.00) 68 Long Government (151) (398) (1,066) (635) (1.34) (10.92) 69 China Region (44) 43 (301) (591) (1.19) 70 Muni Ohio (166) (316) (446) (343) (1.68) (6.04)

7 Morningstar Direct SM Publishing Date: Page 3 of 6 Morningstar Categories Ranked by Current TNA ($Mil) Rank Name Estimated Net Flow ($mil) Total Net Assets ($bil) Total Return 1-Mo QTD YTD 1-Yr Mkt Sh % Mkt Sh % 1-Mo YTD 71 Miscellaneous Region (76) (206) (1,062) (1,558) (1.93) (0.84) 72 Muni Minnesota (111) (215) (220) (109) (1.42) (5.35) 73 Communications (43) (60) (42) (138) (2.12) Consumer Cyclical (113) (2.88) Latin America Stock (73) (199) (984) (1,472) (4.29) (17.64) 76 Industrials (3) (2.40) Muni New York Intermediate (93) (157) (223) (306) (1.24) (4.18) 78 Consumer Defensive (81) (70) (15) (3.37) Target Date (14) (1.58) Japan Stock (33) (382) (711) (932) (3.01) Target Date (1.85) Target Date (161) (181) (100) (1.85) Trading-Leveraged Equity (102) (30) (4.40) Target Date (2.04) Target Date (141) (149) (21) (2.11) Target Date (2.10) Retirement Income (50) (77) (191) (213) (1.28) Target Date (69) (90) (84) (1.52) Target Date (13) (34) (125) (119) (1.31) India Equity (22) (46) (173) (240) (12.92) (28.17) 91 Trading-Inverse Debt 11 (351) 109 (252) Target Date (103) (103) (13) (2.22) Trading-Leveraged Debt (338) (1.93) (14.13) 94 Miscellaneous Sector (2.77) Target Date (2.29) Trading-Miscellaneous 8 (3) 6 (3) (2.10) 97 Trading-Inverse Commodities (6) (1) (3.32) Trading-Inverse Equity (1.91) 99 Commodities Precious Metals Trading-Leveraged Commodities (2) 0 (3) (8) Top 10 (11,901) (10,460) 38,881 34,828 6, , All (7,921) 6, , ,238 9, ,

8 Morningstar Direct SM Publishing Date: Page 4 of 6 Top Fund Families Ranked by Current TNA ($Mil) Rank Name Estimated Net Flow ($mil) Assets Under Management ($bil) 1-Mo QTD YTD 1-Yr Mkt Sh % Mkt Sh % 1 Vanguard 552 3,207 50,755 64,922 1, , Fidelity Investments (802) (721) 7,246 4,694 1, American Funds (1,894) (3,539) (11,581) (33,429) PIMCO (11,011) (18,398) (1,776) 27, Franklin Templeton Investment Funds (1,754) (2,462) 7,510 9, T. Rowe Price (1,455) (1,235) 5,122 5, JPMorgan 1,863 5,305 15,609 22, Dimensional Fund Advisors 1,664 3,902 15,101 17, OppenheimerFunds 1,033 2,756 12,793 15, BlackRock 530 1,977 5,650 5, Columbia (1,664) (2,715) (8,656) (13,714) MFS 1,680 2,896 14,877 19, Dodge & Cox (3,102) Invesco (212) (74) 1,825 1, Lord Abbett (403) 415 5,553 9, Wells Fargo Advantage (312) (667) (1,263) (2,836) Janus (1,385) (3,561) (8,546) (11,396) John Hancock 817 1,846 8,421 9, American Century Investments (588) (1,113) (2,361) (2,479) Principal Funds (290) 939 5,748 8, Hartford Mutual Funds (283) (987) (7,252) (10,126) Harbor (280) (718) 1,654 1, Eaton Vance 504 1,232 8,281 8, Goldman Sachs 797 2,160 7,670 8, Legg Mason (583) (181) (276) GMO 819 1,111 1,991 2, ING Retirement Funds (403) (875) (3,058) (4,520) MainStay 1,368 2,566 8,367 9, First Eagle ,449 5, TIAA-CREF Mutual Funds 613 1,198 4,682 8, Prudential Investments (276) 110 3,465 5, Ivy Funds ,871 3, Oakmark 1,886 3,244 8,239 8, Thornburg ,303 1, Dreyfus ,002 2,

9 Morningstar Direct SM Publishing Date: Page 5 of 6 Top Fund Families Ranked by Current TNA ($Mil) Rank Name Estimated Net Flow ($mil) Assets Under Management ($bil) 1-Mo QTD YTD 1-Yr Mkt Sh % Mkt Sh % 36 Putnam , Federated (828) (1,217) (3,335) (3,325) AllianceBernstein (281) (133) (326) (941) Nuveen (586) (1,219) (49) 1, USAA (132) (2,845) (1,874) (119) Natixis Funds (93) , DWS Investments (425) (611) (1,798) (2,484) Northern Funds (77) 53 1,464 2, DoubleLine (1,147) (1,778) (135) 5, Russell (86) (163) Delaware Investments (788) (803) (480) (215) Neuberger Berman ,555 2, Pioneer Investments (164) (727) (683) (2,308) Managers Funds 545 1,423 3,776 4, SEI (7) 434 1,739 3, Top 10 (11,274) (9,207) 106, ,234 5, , Top 50 (11,576) (5,383) 171, ,329 8, , Other 3,655 12,077 52,487 43,364 1, , All (7,921) 6, , ,693 9, , Asset Classes Name Estimated Net Flow ($mil) Assets Under Management ($bil) 1-Mo QTD YTD 1-Yr Mkt Sh % Mkt Sh % US Equity 1,652 7,188 27,764 (31,277) 4, , Sector Equity 1,190 3,903 18,248 15, International Equity 8,298 15,825 95,365 88,084 1, , Allocation 3,653 9,450 35,453 33, Taxable Bond (15,526) (17,026) 46, ,877 2, , Municipal Bond (11,798) (22,069) (31,919) (20,978) Alternative 4,210 8,414 28,304 33, Commodities ,399 2, All Long Term (7,921) 6, , ,238 9, ,

10 Morningstar Direct SM Publishing Date: Page 6 of 6 Morningstar Ratings Name Estimated Net Flow ($mil) Total Net Assets ($bil) 1-Mo QTD YTD 1-Yr Mkt Sh % Mkt Sh % QQQQQ 9,428 24, , ,596 1, , QQQQ (6,174) (4,368) 70,501 86,625 4, , QQQ (10,698) (15,259) (20,460) (53,363) 3, , QQ (7,816) (16,117) (55,905) (86,623) Q (3,230) (5,319) (25,713) (38,269) Not Rated 10,569 22, , , Total (7,921) 6, , ,238 9, ,