Since the beginning of 2018, there were just 14 weeks when equity mutual funds gathered new money, equal to just 8.7% of the time. Coincidentally, equity mutual funds also had a 44-week cold stretch that ended in the week of March 11, 2020 with $8.3 billion of net inflows. In contrast, the $11 billion of net inflows for taxable bond mutual funds extended the weekly inflow streak to 15.
With one weekly exception around the November 2020 election, the category has pulled in new money for 43 weeks in a row. Investors remain much more loyal to their bond mutual funds than equity ones.
Equity ETFs have dominated in recent years, with $1.1 trillion of net issuance occurring since 2018. Some of the ETF demand stems from the $1.3 trillion of net outflows equity mutual funds incurred in the same period, but investors are also replacing individual stock positions with more diversified ETFs.
Overall, many investors increasingly choose the typically lower-cost, more tax-efficient ETF product, said Rosenbluth. “These investors often benefit by seeking to replicate a benchmark rather than attempt to outperform.” Although many people, in contrast, continue to choose index-based mutual funds such as Vanguard Total Stock Market Fund (VTSAX), others pick Vanguard Total Stock Market ETF (VTI) or other ETFs, he added.
According to Rosenbluth, CFRA expects many investors to remain loyal to equity mutual funds and to increase exposure to long-held allocations. “We provide ratings on more than 16,000 mutual funds to support ongoing due diligence. However, the pendulum will likely continue to swing toward equity ETFs relative to mutual funds, especially as more asset managers offer both ETFs and mutual funds -- giving investors a choice of the structure. We think consecutive weeks of net inflows for equity mutual funds will be a rare occurrence in 2021.”