When fund flows mean trouble – Morningstar Research
Sep 29, 2016
Troubled by Fund Flows / Morningstar Research
by Wiley Green 09 2016
The flow of assets from active to passive strategies has been staggering. In the 12 months ended July 31, 2016, active U.S. equity strategies have lost nearly $205 billion, while passive U.S. equity funds have gained nearly $70 billion. The two shops with the most active assets under management, American Funds and Fidelity Investments, have lost about $10.5 billion and $36.0 billion, respectively, over the trailing year.
What does this mean for individual active funds suffering bouts of outflows? Many advisors and investors suspect drastic flows can hamper a manager’s ability to execute a given strategy. We devised a test to see if historical data supports such suspicions and to perhaps help determine how worried fund owners should be if their holdings are hit by severe inflows or outflows. The study found a historical relationship between flow levels and subsequent performance.