Active US funds suffer worst outflows ever

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

Active fund managers may be having their best year performance-wise since the financial crisis, but investors don't seem to care.

Mutual funds that rely on active strategies, i.e., picking stocks and moving in and out of positions, suffered their worst 12-month period ever in terms of money flows, according to Morningstar. U.S.-focused funds in that category surrendered $156 billion during the period.

That marks a huge contrast with passive funds that track various indexes such as the Russell 1000, S&P 500 and the Nasdaq. That family of funds took in more than $150 billion during the period, Morningstar reported Thursday.

The difference in total assets remains heavily weighted toward active U.S. equity funds, which have $3.8 trillion under management compared to $2.4 trillion for passive in the $17 trillion mutual fund industry.

But the trend toward passive is clearly picking up.

"Overall, investors appear to be wary of the U.S. stock market approaching the end of its six-year bull run," Alina Lamy, senior analyst for markets research at Morningstar, said in a report accompanying the data.

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The trend has happened even as things have gotten better for active funds in 2015.

A year after their worst performance ever when measured against their benchmarks, active managers have bounced back this year. Some 48 percent have outperformed the Russell 1000, which has gained 3.4 percent year to date, according to Bank of America Merrill Lynch.

But BofAML also acknowledged the outflow trend despite the positive results, noting that "After a challenging period for active funds, we have seen no slowdown in the flows out of active into passive, with potentially a lot more to go."

Hedge fund managers, who use active strategies, have had a good year as well. Research firm Preqin, which gauges performance using a fund that blends various strategies, said the $3.2 trillion industry is up 4.5 percent for the year, though it did suffer its first negative month of 2015 in June.

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The month in total saw actively managed U.S. funds lose $14.4 billion, while passive U.S. funds gained $6.4 billion, Morningstar said. There's been a strong trend toward bond funds despite fears of rising interest rates, with taxable passive funds pulling in $1.9 billion for June as part of $112 billion in inflows over the past 12 months.

Pimco's vaunted Total Return Fund, which was once the largest fixed income offering in the world, lost another $3 billion in June, part of a $208.2 billion hemorrhage since January 2014. That has come even though Total Return has topped 75 percent of its peers year to date, Morningstar noted.

However, Pimco's founder and former CEO Bill Gross, who departed last year after more than 40 years at the firm, isn't faring much better since moving to Janus Capital. His Janus Global Unconstrained Bond fund has pulled in just $1.5 billion since starting in May 2014 and is down 0.1 percent year to date.