As interest rates marched higher in March 2018, investors fled stock funds.
According to a report by Chicago-based Morningstar published Wednesday, $10.5 billion flowed out of passive U.S. equity funds, while $11 billion flowed out of active U.S. equity funds.
All told, investors pulled $21.5 billion from U.S. equity funds, after pulling $26.1 billion in February. March became the second consecutive month of U.S. equity outflows, something that has not occurred since September and October of 2009, according to Morningstar.
March was the first month of passive equity outflows since April 2015.
One of March’s big inflow winners was the taxable bond fund category, which added $15.9 billion for the month. Investors may find taxable bonds more attractive since passage of the Tax Cuts and Jobs Act of 2017. The bill reduced income tax rates for many investors, easing the potential tax impact of taxable bond funds.
Investors are viewing taxable bond funds as a “safe haven,” according to Morningstar, amid interest rate uncertainty.
Equity investors also looked beyond the U.S. in March, placing $13.3 billion in international equity funds, enough to make it the second-leading category in monthly inflows.
U.S. equity as a category experienced the highest outflows for March. The only other group reporting outflows for the month was allocation funds, which saw $2.8 billion withdrawn.
The categories with the highest inflows were foreign large-cap blend funds, with $13.5 billion; ultra-short-term bond funds, with inflows of $6 billion; and intermediate-term bond funds, with inflows of $4.8 billion. Large-cap blend funds experienced $19 billion of outflows, the most of any category. Investor capital also fled high-yield bond funds for the sixth consecutive month.
Nearly $13.5 billion flowed into funds across all categories in March, while $7.7 billion flowed out during February. Vanguard took in the largest portion of fund flows in March, with $14.8 billion for the month and approximately $59 billion for the first quarter of 2018. PIMCO experienced $2.4 billion in inflows, the second-highest, followed by Dimensional Fund Advisors at $2.1 billion.