Active managers took another hard hit as investors fled U.S. equity funds last month.
Investors pulled $46 billion from the mutual funds and exchange-traded funds focused on U.S. stocks, the second-highest monthly outflows ever after August, according to a Morningstar report this week. While actively managed and passive strategies each “felt the sting of outflows in October,” the research firm said “outflows are hitting active managers much harder.”
Investor withdrew about three times as much capital from actively managed U.S. equity funds, leaving passive strategies with about $300 billion more in assets for a total of $4.8 trillion in the category at the end of October, the report shows. Passive funds have been winning over investors as active managers charge higher fees despite failing to persistently outperform.
The coronavirus pandemic and U.S. elections have injected volatility into the markets this year, with October marking the seventh straight month of outflows for U.S. equities. Even large-growth equity funds, which Morningstar called “one of the market’s hottest areas in 2020,” bled $19 billion last month.
“Many firms that prefer value to growth investing have struggled to retain assets,” Morningstar said. “Dimensional Fund Advisors’ $3.6 billion of outflows in October marked the eighth consecutive month of at least $2.6 billion in net redemptions.”
The outflows pushed Dimensional out of the top 10 largest firms measured by total long-term assets under management, according to Morningstar.
Vanguard Group is the biggest asset manager, with its $5.4 trillion under management representing about a quarter of the market share, the report showed. Fidelity Investments is the second biggest at $1.9 trillion of assets, and American Funds ranks third with about $1.8 trillion.
Morningstar highlighted other U.S. fund managers with big outflows from equities.
Invesco, the asset manager in which Nelson Peltz’s Trian Fund Management has built a stake, saw $4 billion of outflows from its U.S. equity funds in October, the research firm said. And Dodge & Cox, “whose equity strategies tilt toward out-of-favor areas such as energy and financials,” had almost $1.7 billion of withdrawals last month.
“The flows picture looked bleak for U.S. equity funds,” said Morningstar.