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Is the Market Back to Normal? Q2 2021 Fund Flows

With increasingly available vaccines, businesses reopening, and most people eager to get out of their homes, Q2 saw a dramatic rise in the S&P 500, up 15.25% in 2021 through June. Meanwhile, the Bloomberg Barclays US Aggregate moved higher from its 2021 low but was still down 3.21% at the midway point of the year.

While the Fed reassured the public they would not increase overnight rates from near-zero percent, the US inflation rate showed no signs of slowing down, ending the quarter at 5.39%.

Equity, Fixed Income, S&P 500, The Agg, Bloomgberg Barclays Global Aggregate, Economy, Inflation, US Inflation Rate, US Inflation, Q2 2021, Indices

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So what can we expect after the S&P 500’s rapid growth in H1? How will the economy respond to rising inflation? And will the currently bullish market go into hibernation in Q3?

To answer these questions, we look to fund flows.

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 more 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.

Are you discussing fund flows with advisors and clients? Reach out to see how YCharts improves the quality and efficiency of your sales conversations.

 

Mutual Fund Flows: Biggest Winners And Losers

Similar to Q1 2021, Money Market mutual funds saw the most inflows in Q2 2021, at $37.3 billion. While Q2 was actually a net positive, $78.5 billion of investor assets flowed out of the Money Market category in June alone. Could this trend continue in Q3 as investors and corporations put capital to work?

Q2 2021, Fund Flows, Mutual Funds, YCharts, June 2021, YCharts, Inflows

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Intermediate Core Bond funds accumulated $26.9 billion in assets, repeating as the second most popular mutual fund category. The market was clearly hungry for fixed income exposure, with Intermediate Core-Plus, Short-Term Bond, and Inflation Protected Bonds rounding out the top five asset gatherers in Q2.

Q2 2021, Fund Flows, Mutual Funds, YCharts, June 2021, YCharts, Outflows

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Large Blend mutual funds were the outflow leaders of Q2, losing $29.7 billion in assets. As in Q1, investors traded growth holdings for value—Large Growth continued its losing ways with outflows of $24 billion. High Yield Bond, Mid-Cap Growth, and Foreign Large Growth funds experienced the next largest losses of $8.4 billion, $7 billion, and $6.5 billion, respectively. 

 

ETF Flows: Biggest Winners And Losers

Though Large Blend mutual funds posted the largest outflow in Q2, the exact opposite happened with Large Blend ETFs, topping the list with $36.2 billion of net positive asset flows. Large Value ETFs came in second at $26.3 billion with Q2 mirroring the previous quarter’s top two inflows. 

Foreign Large Blend and Europe Stock ETFs both saw a sizable uptick in assets as investors gained confidence in the recovery efforts of economies outside the US. Though with more aggressive COVID-19 variants causing daily case resurgences, there’s no way to predict whether this trend will continue into the next quarter.

Q2 2021, Fund Flows, ETFs, June 2021, YCharts, inflows

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In ETFs, Q2’s “biggest loser” was the Trading-Leveraged Equity category, losing $3.8 billion in assets. With sectors like Energy, Financials, and Basic Materials coming into favor in 2021, Technology, Consumer Cyclical, and Industrials were moved to the back burner and investors herded out.

Q2 2021, Fund Flows, ETFs, June 2021, YCharts, Outflows

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Equity Style Fund Flows And Performance

The table below shows a summation of mutual fund and ETF fund flows, plus average category performance for the nine equity style boxes.

The net inflow leader for Q2 was Large-Cap Value, raking in $27.2 billion. However, Large-Cap Growth fared worse with net outflows of $16.1 billion, a continuation of asset attrition seen in Q1.

Q2 2021, Fund Flows, Mutual Funds, ETFs, Equity Style, YCharts, Performance

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Of the nine style-market cap categories, Growth funds delivered the best performance in Q2. Surprisingly, the largest asset outflows also occurred in Large-, Mid-, and Small-Cap Growth funds. Is it time investors fall back in love with growth?

 

Passive Funds Outpace Active Managers With No Signs Of Slowing Down

In Q2, investors jumped to put their money back to work, as net asset flows were positive for both active and passive mutual funds and ETFs. This said, passive funds attracted nearly three times the flows—$247.1 billion versus just $83.2 billion—that active managers did in the quarter.

Vanguard’s Total International Bond ETF (BNDX), lost $18.7 billion of investor assets in Q2 as yields rose early in 2021 and bond prices slipped. As of late though, that trend has reversed and BNDX has risen off its 2021 low. Separately, BlackRock’s US Carbon Transition Readiness ETF (LCTU) picked up $1.3 billion of net inflows in Q2, showing investors still have an appetite for socially responsible strategies.

Q2 2021, Fund Flows, Mutual Funds, ETFs, Active Managers, Passive Funds, Inflows, Outflows, YCharts

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Vanguard’s US funds led the way for passive ETF inflows in Q2. Vanguard Total Stock Market ETF (VTI) and Vanguard Total Bond Market ETF (BND) had the largest fund inflows with $9.1 billion and $7.9 billion, respectively, indicating a restored confidence in the domestic economy.

 

Investors Solidify Their Stance On The US Bull Market

The goal of analyzing fund flows is to uncover insights about investor sentiment. So what does the Q2 2021 data reveal?

Investors continued to be bullish on the US in light of an increasingly fully-vaccinated population and many states fully re-opening during the quarter. That said, international equities have also proven themselves as attractive options for combating inflation.

Q1 2021’s rotation from growth into value persisted in Q2 as growth funds across each market cap band lost assets on a net basis. However, with positive returns in June and Q2 overall, perhaps the market is rethinking the value-growth hierarchy once again. Only time will tell.

Are you discussing fund flows with advisors and clients? Reach out to see how YCharts improves the quality and efficiency of your sales conversations.

 

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