Investors turn to fixed income and money market category groups in 2016 looking for less risky assets
Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published its fifth annual Global Asset Flows Report examining worldwide 2016 mutual fund and exchange-traded product (ETP) asset flows.
Worldwide flows decreased to US$728 billion in 2016 from US$1 trillion in 2015, signaling slowing demand for global markets. The U.S. fund industry had new asset flows of US$288 billion, an increase from US$260 billion in 2015. Outside the United States, flows were mostly evenly distributed among the three other major regions analysed by Morningstar: cross-border funds, which are available in multiple markets, Europe, and Asia, with flows of US$138 billion, US$103 billion, and US$134 billion, respectively.
“2016 was a year of modest growth around the world, with heightened uncertainty due in part to extraordinary political events,” Alina Lamy, Senior Markets Analyst for Morningstar, said. “Investors are reacting to this turbulent environment by going back to the basics, looking for less risky assets, positioning their portfolios in expectation of rising interest rates, or selling off equities after a significant run-up. More specifically, fixed income strategies saw the largest flows globally in 2016 and commodity funds experienced a high organic growth rate, with the largest inflows going to the precious metals category.”
Highlights from Morningstar’s 2016 Global Asset Flows Report include:
- The pattern of flows by category group notably differed from 2015. In 2016, the category groups that received the largest flows were fixed income and money market, with flows of US$412 billion and US$196 billion respectively. In 2015, the top-receiving category group was equity, with US$346 billion, followed by allocation, with US$167 billion. In terms of organic growth rates, commodities grew the fastest at 25.7 percent in 2016.
- Vanguard continued to dominate the asset management industry last year, sustained and propelled by the growing popularity of index strategies. Vanguard, with net inflows of US$317 billion, was followed by BlackRock/iShares with net inflows of US$154 billion. The fastest-growing firm in the top 10 was State Street, which saw an organic growth rate of 12.5 percent in 2016. Generally, firms that expanded their product lines to include exchange-traded products and lower-cost options have benefited, while those focused on traditional active management have suffered, such as Franklin Templeton, which saw an outflow of US$72 billion in 2016.
- In the United States, index funds attracted US$492 billion in 2016. Their active counterparts, in sharp contrast, saw US$204 billion of outflows. In the Asia, cross-border, and Europe regions, however, active flows beat their passive counterparts.
- The largest discrepancy between active and passive flows occurred in the equity category group, with US$390 billion going into index funds and US$423 billion flowing out of active funds. Fixed income received inflows across both active and passive strategies worldwide.
- Funds that have a quantitative Morningstar Rating™ of four and five stars saw inflows in 2016 of US$127 billion and US$221 billion, respectively, while one, two-, and three-star funds suffered outflows. Similarly, funds that have a qualitative Morningstar Analyst Rating™ of Gold and Silver attracted the largest inflows of US$29 billion and US$14 billion, respectively, and posted the only positive organic growth rates.
- ETP assets continued to grow, reaching US$3.6 trillion globally at the end of 2016, signaling that investors are increasingly sensitive to fees.
The Morningstar Global Asset Flows Report is based on assets reported by more than 4,000 fund groups across 85 domiciles. The report represents more than 95,000 fund portfolios encompassing more than 240,000 share classes and includes a global overview as well as analysis about the United States, Europe, Asia, and cross-border offerings. Morningstar estimates net flow for mutual funds by computing the change in assets not explained by the performance of the fund and net flow for ETPs by computing the change in shares outstanding.
View the complete report here.
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Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than US$200 billion in assets under advisement and management at 31 December 2016. The company has operations in 27 countries.
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