Morningstar Inc. reported today that as of July, money market funds had their strongest three-month stretch in at least 10 years, while taxable passive and active bond funds also scored big as interest rates fell.
Meanwhile, active U.S. equity funds saw $23.5 billion in outflows and passive U.S. equity funds saw $6.6 billion in inflows. Together, that performance was the worst it’s been since June 2018, Morningstar said in its report on U.S. mutual fund and exchange-traded fund flows for July 2019.
“Money market funds took in a robust $75.7 billion. The group has collected about $202.0 billion over the past three months alone, the strongest three-month stretch in at least 10 years,” the report said. “Taxable-bond funds absorbed about $40.2 billion in inflows, the group's best showing since January 2018. It was also the best month for active taxable-bond funds since October 2012.”
Over the last year, money market funds far outpaced every other category, with estimated net inflows of $400.2 billion, and total assets now stand at $3.3 trillion. Taxable bond funds came in second, with $206.3 billion in inflows, and total assets now stand at $4.2 trillion.
Morningstar noted falling interest rates have accompanied the flood of money into bond funds, with the yield on the 10-year Treasury bond falling to about 2% by the end of July, fueling strong returns. High-yield bond funds had a particularly strong showing, with returns of 9.2% to date.
“So, add strong returns to the other tailwind for taxable-bond demand: demographics. More baby boomers are seeking safety and income in retirement, funneling money into bond funds,” the report said.
Still, U.S. equity funds continue to be the largest in terms of assets, with $8.7 trillion. Although the group had net outflows of $17 billion in July, for the year net inflows were $40.7 billion, all of that due to passive investments. Active U.S. equity funds had net outflows of $202.1 million, while passive U.S. equity had net inflows of $242.8 million.
“International-equity funds mirrored their domestic counterparts with nearly $4.0 billion of outflows," the report said. "The bleeding continues for allocation and sector-equity funds. Over the past 12 months, these two groups have been hit the hardest by outflows, with allocation losing more than $66 billion and sector-equity nearly $51 billion.”
Positive momentum for municipal bond funds continued in July with the group gaining $10.2 billion in inflows. “If this pace continues, 2019 could be a record year for municipal-bond inflows, which were nearly $60.9 billion for the year to date through July,” the report said.
The behemoth Vanguard continued its lead with nearly $14.9 billion in long-term inflows, while iShares had about $4.2 billion in outflows, its worst performance since June 2018.