Mutual fund investors flooded stockpickers with redemption orders during the latest week, cashing out the most money in five years, Investment Company Institute data showed on Wednesday. The investors pulled $16.9 billion from stock mutual funds in the seven days through October 19, more than in any other week since August 2011, the trade group's data showed.
By contrast, stock exchange-traded funds took in $2.4 billion. ETFs mostly "passively" track market indexes, while the mutual funds largely employ "active" managers who pick stocks. The latest data is another somber development for stock mutual fund managers who, despite strong markets, are on pace to record a year of withdrawals comparable with the 2008 peak of the global financial crisis.
The S&P 500 index, including dividends, is headed to its eighth year of positive returns. "The trend to passive ETFs has persisted throughout the year," said Todd Rosenbluth, director of ETF & mutual fund research at CFRA. "Active funds have failed to keep up with common benchmarks this year, and investors are looking for lower-cost alternatives." The outflows from stock mutual funds come ahead of the November 8 US presidential election and a potential interest-rate hike by the Federal Reserve that could push equities lower.
"Investors sharply rotated out of large- and mid-cap mutual funds last week, just as the start of earnings season kicked off," said Rosenbluth. Even though overall earnings of S&P 500 companies are now expected to snap a four-quarter streak of declines, according to Thomson Reuters I/B/E/S, that was not enough to soothe fund investors. US-based bond mutual funds and ETFs attracted $6.3 billion in their 16th consecutive week of inflows, ICI said.