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Asset Managers - January 26, 2021

2020 Fund Flows: Active vs Passive, Thematic ETFs & More

Since bottoming out on March 23, 2020, the S&P 500 has climbed 75% on a total return basis, and the Bloomberg Barclays US Aggregate is nearly 6% off its low. Momentum in stocks has continued through January 2021, but recent jumps in Treasury Rates have slowed price appreciation of investment-grade fixed income.

The calendar no longer reads 2020, but this new year is a similarly mixed bag for investors: the market seemed to embrace President Joe Biden’s inauguration, and corporate earnings are trending up; however, COVID-19 still grips both the country and globe as vaccine rollout has been slower than expected or hoped.

SPX and US AGG since 2020 low

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To gain new insights about investor behavior in 2020, and prepare asset managers and advisors for what 2021 may bring, we look to fund flow data.

Fund flows are the net cash inflow into a fund (purchases) or net outflow from a fund (redemptions). Irrespective of fund performance, when a mutual fund or ETF has positive fund flows (or net issuances for ETFs) in a given period, that fund’s managers then have more cash to buy additional holdings. The opposite is also true: as fund holders sell shares, fund managers sell out of positions and use the cash to pay redemptions.

This means that fund flow data can indicate higher or lower demand for different asset types, depending on which funds and categories have relatively large inflows or outflows.

Looking for fund flow insights to share with advisors and clients? Reach out to see how YCharts improves the quality and efficiency of your sales conversations.

Passive dominated in 2020, but Active managers led Q4

Over the course of 2020, actively managed mutual funds and ETFs posted net negative fund flows of $154 billion. Passive funds, on the other hand, attracted net positive flows of $437 billion. As investors put money back to work in 2020’s fourth quarter, both passive and active strategies gained AUM.

Asset manager Ark Invest, a Cinderella story of 2020 in its own right, led actively managed ETFs in Q4. Ark manages five active ETFs, including the hugely popular ARK Innovation ETF (ARKK), that brought in a combined $20.5 billion of assets in 2020, $13.1 billion of which came in Q4 alone, and all five returned more than 100% last year.

active vs passive fund flows 2020

Likely driven by major narratives over the last year—like the “work from home” and “BEACH” (Bookings, Entertainment, Airlines, Cruise/Casino, and Hotels) stocks—2020 was a boon year for thematic ETFs.

Mutual Fund Flows: Biggest Winners and Losers

As was the case in our Q3 2020 review, assets flowed into short-term and intermediate fixed income funds to end the year. By avoiding longer term bonds, investors may be signaling that their inflation expectations have increased.

Over the entirety of 2020, Money Market funds added nearly $700 billion in assets—about 7.5x more than the Intermediate Core Bond category. Apparently, a large number of investors and corporate treasuries sought stability over stocks’ flashy gains and bonds’ depressed yields.

Most positive fund flows mutual funds 2020

In contrast with full year flows, the Money Market category was the biggest loser in Q4 of 2020 with net outflows of almost $74 billion. Large Blend, Large Growth, and Large Value mutual funds suffered through the year, losing a combined $275 billion in assets. But, their ETF counterparts gained traction (see next section) as investors continue to prefer passive strategies for equity exposure.

Most negative fund flows mutual funds 2020

ETF Flows: Biggest Winners and Losers

Large Blend exchange traded funds (ETFs) attracted more assets than any other category in both the fourth quarter and entirety of 2020. Some noteworthy winners in the category are  iShares ESG Aware MSCI USA ETF (ESGU) and Invesco S&P 500® Equal Weight ETF (RSP), adding $3.2 billion and $2.8 billion in the fourth quarter, respectively.

Most positive fund flows ETFs 2020

While Commodities Focused ETFs were second on the table for most inflows in 2020, the category also took second for net outflows in the fourth quarter. Trading-Leveraged Equity ETFs gave up $7 billion in Q4, moving the category into net negative territory for the full year. $4.8 billion of that outflow is attributable to ProShares UltraPro QQQ (TQQQ).

Most negative fund flows ETFs 2020

Looking for fund flow insights to share with advisors and clients? Reach out to see how YCharts improves the quality and efficiency of your sales conversations.

Equity style fund flows and performance

Average 2020 returns topped 35% for all three size variants of growth equity funds. With Small Cap equity funds outperforming late in the year, investors chased returns and bought into those strategies more than any other style box grouping.

fund flows by equity style category 2020

The attrition of assets from Large Cap funds throughout 2020 is interesting—despite strong performance since the COVID-19 induced selloff in March, performance didn’t lead to positive asset flows, as was the case for Small Caps.

Another important trend to watch is net outflows from Large Growth funds. Recent commentary has suggested that the growth cycle may be ending, and value based strategies will outperform going forward.

Looking for fund flow insights to share with advisors and clients? Reach out to see how YCharts improves the quality and efficiency of your sales conversations.

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