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According to the Morningstar Direct U.S. Asset Flows Update, passive US equity funds saw inflows of $166.6 billion, while active U.S. equity funds lost $98.4 billion in 2014. Passive U.S. equity surpassed all other equity categories even for three years. In the one-year period, passive flows outperformed all equity categories, including taxable bonds. Active management was still a favorable option for allocation, municipal bond, and alternative categories.

Meanwhile, active taxable-bond category continued to saw outflows, largely due to PIMCO-related events. High estimated outflows in September and October saw some respite in November, but active taxable-bond funds again witnessed estimated outflow of $23 billion in December. However, passive taxable-bond saw inflows for 13 straight months.

Among the fund families, Vanguard attracted most funds for one year period on the passive side. J.P. Morgan saw biggest flows on the active side.

Equity Category Groups Flow
As for the fund categories, international-equity funds led the inflows in 2014 and were closely followed by US equity funds. This comes after the Fixed-income funds had seen majority of the inflows from 2009 to 2012 owing to the “flight-to-safety” trend. The U.S. and international-equity flows could beat fixed-income flows in 2013.

  1-Yr Estimated Net Flows (in million)
Active Passive
International Equity 54,357 89,808
U.S. Equity -98,358 166,616
Sector Equity 21,152 48,066
Allocation 41,611 4,757
Taxable Bond -17,184 104,792
Municipal Bond 28,207 3,740
Alternative 16,660 3,636
Commodities -2,180 -1,283
All Long Term 44,265 420,142
Source: Morningstar Direct Asset Flows
Estimated net flows include liquidated and merged funds


Blend Funds Gain Popularity

Investors are not predominantly focused on growth or value strategies, but are preferring blend funds as well. Large blend and foreign large blend have attracted strong flows and again on the passive side. Large blend, Intermediate-Term Bond and Foreign Large Blend saw strong inflows in 2014. (Read: 3 Large, Mid & Small Cap Blend Funds to Buy for Growth & Value)

On the other hand, high-yield-bond, bank-loan, and short-government funds saw outflows as investors remained uncertain regarding what the US central bank decides on rate hike. Emerging market funds also saw outflows due to strong dollar, plunging oil prices, concerns about global economy and Russian situation.

Leaders 1-Yr Estimated Net Flows (in million)
Active Passive
Large Blend -3,912 109,412
Intermediate-Term Bond -19,227 52,920
Foreign Large Blend 33,056 59,734
Consumer Cyclical -819 2,441
Financial -459 4,166
 
Laggards 1-Yr Estimated Net Flows (in million)
Active Passive
High-Yield Bond -17,510 1,563
Bank Loan -20,359 -317
Diversified Emerging Markets 11,615 648
Short Government -1,278 1,130
Large Growth -43,314 2,166
 
Vanguard Leads Fund Families Flow

With inflows of $200,833 million, Vanguard was the most favored fund family in 2014. On the active side, it ranked second after J.P. Morgan pulled largest flows via its advisor-sold active funds. (Read: 3 Top Performing Vanguard Mutual Funds in 2014).

Separately, PIMCO continued to witness outflows, a trend most prominent after Bill Gross quit PIMCO to join Janus. PIMCO saw total outflow of $150 billion in 2014, resulting in 29% decline in assets. For the last four months alone, outflows in PIMCO totaled $115.9 billion, while PIMCO Total Return fund saw outflows of $78 billion in the last four months. PIMCO Total Return A (PTTAX - Free Report) currently carries a Zacks Mutual Fund Rank #4 (Sell). This, along with PIMCO Fundamental Advantage Absolute Return Strategy (PFATX), ended in the bottom flowing five. (Read: Why Bill Gross Left PIMCO to Join Janus: PIMCO to See Outflows?)

As expected, Janus (JNS) attracted funds after signing Bill Gross. Janus Global Unconstrained Bond pulled $1.3 billion during the past three months. (Read: Bill Gross Effect Continues: Janus Fund Attracts $770M in Nov).

Mutual Funds Witnessing Inflows

Here we will look at the top-flowing active and passive mutual funds. These funds saw significant inflows for December and also in 2014.

Passive Funds

Vanguard Total Stock Market Index Fund Investor (VTSMX - Free Report) saw inflows of $35,866 million in 2014. The fund attracted $3,557 million in December. The fund provides a convenient way to match the performance of the entire U.S. stock market. It uses an indexing investment approach that tracks performance of the CRSP U.S. Total Market Index. This index represents almost all the investable U.S. stock market of all sizes that are traded on the New York Stock Exchange and Nasdaq.

The fund has returned 8.6% over one year and has three-year annualized return of about 18%. VTSMX currently carries a Zacks Mutual Fund Rank #3 (Hold).

Vanguard Total International Stock Index Investor (VGTSX - Free Report) saw inflows of $27,194 million in 2014. The fund attracted $4,708 million in December. The fund seeks to track performance of the FTSE Global All Cap ex U.S. Index. It measures the investment return of stocks from developed and emerging markets, excluding the US. This index comprises 5,330 stocks from 45 countries.

The fund has a negative return of 4.9% over one year and has three-year annualized return of about 8.2%. VGTSX currently carries a Zacks Mutual Fund Rank #3 (Hold).
Active Funds
Metropolitan West Total Return Bond M (MWTRX - Free Report) saw inflows of $24,331 million in 2014. The fund attracted $7,194 million in December. The fund normally invests at least 80% of assets in investment-grade debt and up to 20% of assets in securities rated as low as B. Typically the average duration ranges between two and eight years and the dollar-weighted average maturity ranges between two and fifteen years.
The fund has returned 6.6% over one year and has three-year annualized return of about 5.9%. MWTRX currently carries a Zacks Mutual Fund Rank #2 (Buy).

Dodge & Cox Income (DODIX - Free Report) invests in a wide range of high-quality bonds and other debt securities. These include U.S. government obligations, mortgage and asset-backed securities, corporate bonds, collateralized mortgage obligations (CMOs) and repurchase agreements, and commercial paper.

The fund has returned 5.8% over one year and has three-year annualized return of about 4.6%. DODIX currently carries a Zacks Mutual Fund Rank #2 (Buy).

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank athttps://www.zacks.com/funds/mutual-funds.


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