Sale of COVID-19 records record outflows in long-term funds

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March saw record $ 326 billion outflows from long-term mutual funds and exchange-traded funds as the COVID-19 pandemic spurred the fastest equity bear market in history of the stock market, according to Morningstar data.

By comparison, the largest peak in monthly outflows during the 2008 financial crisis was $ 104 billion.

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While total fund flows were significantly negative, long-term U.S. equity funds posted net inflows of $ 10.5 billion in March. Almost all of it was parked in passively managed funds, which attracted $ 41 billion. Actively managed funds continued their strong outflows – in March they lost $ 31 billion. Active funds experienced cash outflows for the 109th month of the last 120.

The only other commodities to post positive flows in March were commodities funds, at $ 3.8 billion. Taxable bonds suffered $ 240 billion in cash outflows in March.

The flows to US equity funds and commodities funds came as stock markets plummeted and demand for energy effectively halted, leaving the floor inundated with oil supplies.

“We don’t have a lot of visibility into what explains the flows to US equity funds and commodities,” said Tony Thomas, senior analyst at Morningstar. “Some of the demand may come from rebalancing – stocks have fallen so sharply that some funds may have had to rebalance into stocks. Obviously there may have been some bottom fishing as well. “

Passive funds have drawn liquidity, while some market watchers predict the impact of COVID-19 on the economy – retailers have been mostly decimated while Amazon shares have hit record highs – will make active management in vogue.

“People can look to broad market exposure for the rebound instead of trying to pick winners and losers,” Thomas said.

The bleeding of taxable bond funds could be a bad sign for corporate balance sheets, as about 20% of the entire fixed income market is made up of corporate debt.

“I cannot speculate on the direct impact of these flows on the balance sheets of companies. Still, one could argue that taxable bond cash outflows suggest that investors are questioning the ability of companies to pay their debts in the event of a sharp and prolonged economic shutdown, ”Thomas said.

“And if there is a drop in demand for corporate debt, companies may have to offer higher yields to attract investors,” he added.

The top 10 active fund managers all posted cash outflows in March, with PIMCO, Vanguard and Fidelity losing the most, at $ 26.5 billion, $ 25.9 billion and $ 24.3 billion, respectively .

All but two of the top 10 managers experienced cash outflows from passive funds. State Street Global Advisors’ SPDR S&P 500 ETF attracted $ 23.9 billion. T. Rowe Price’s passive funds attracted $ 2.4 billion.


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