Where Investors Worldwide Are Placing Their Bets
Our analysis of global asset flows in 2016 finds that investors embraced bonds, favored passive products, and sought low-cost options.
The Morningstar 2016 Global Asset Flows Report analyzes the flows that investors placed in global open-end funds and exchange-traded products during the past year and what these trends reveal about past performance, as well as investor behavior and expectations going forward.
Asset Flow by Region: US Attracted $288 Billion
The United States attracted $288 billion in new flows in 2016, an increase from $260 billion in 2015. Europe, Asia, and Cross-Border, however, saw their inflows diminish compared with the previous year. The fastest-growing region was Asia, followed by Africa, Canada, and Latin America.
” The fastest-growing region was Asia “
Asset Flow by Asset Class: Fixed Income $412 Billion, Commodities Grew 25.7%
The pattern of flows by category group was very different from 2015. The category groups that received the largest flows in 2016 were fixed income and money market ($412 billion and $196 billion, respectively). In 2015, the top receiving category group was equity, with $346 billion, followed by allocation, with $167 billion. In terms of organic growth rates, commodities grew the fastest at 25.7%.
After favoring both U.S. and world ex-U.S. equity funds for three consecutive years, investors turned to fixed income in 2016. In a year that brought about Brexit and a surprising result to the U.S. presidential election, bonds were the investment of choice.
Investors might have been:
- looking for less risky assets
- trying to position portfolios in anticipation of rising interest rates
- selling off equities at the top of a bull market
- or all three.
Active & Passive Flows
In the U.S., the gap between active and passive flows has never been wider. U.S. index funds received $492 billion in 2016. Their active counterparts, in sharp contrast, saw $204 billion fly out the door.
The largest discrepancy between active and passive flows occurred in the equity category group, with $390 billion going into index funds and $423 billion oozing out of active funds. Fixed income, on the other hand, received inflows on both active and passive fronts worldwide.
Exchange-Traded Products (ETP)
ETP* assets continued to grow, reaching $3.6 trillion globally at the end of 2016. These types of products are becoming more and more popular in a climate where the high growth rates of years past are becoming legend and investors are increasingly sensitive to fees, to the point where they are dropping more-expensive funds and buying lower-cost options.
* ETP are products listed on a national exchange such as the stock exchange. Example of ETPs are exchange-traded funds (ETFs), exchange-traded vehicles (ETVs) and exchange-traded notes(ETNs).