'Massive exodus' continues from active funds, and Vanguard is reaping the gains

'Massive exodus' continues from active funds, and Vanguard is reaping the gains
'Massive exodus' continues from active funds, and Vanguard is reaping the gains

The moves happened despite a strong January stock market that saw the S&P 500 gain 1.8 percent.

Vanguard has been a major beneficiary of the move to passive.

In 2016, the firm saw more net inflows than all of its competitors combined — $289 billion to $244 billion, Morningstar said. The firm took in another $46 billion in January that included $43.7 billion to passive products, a gain that pushed the firm past the $4 trillion mark in total assets under management.

Its next-closest competitor was BlackRock, which saw just shy of $14 billion in net inflows for the month.

"We are pleased that investors continue to gravitate to the Vanguard way of investing," Vanguard spokesman John Woerth said. "We firmly believe that our low-cost, disciplined, balanced investment approach gives our clients the best chance for long-term investment success."

Lamy pointed out that most months have seen red numbers for just about all firms in active management, but that was not the case in January. Along with Vanguard, which led the way at $2.3 billion, American Funds, Pimco, State Street and T. Rowe Price all showed active inflows, albeit in small numbers.

Leading asset management firms have been in a prolonged price war, fighting the trend to passive by lowering fees across the board and expanding their offerings in the burgeoning $2.7 trillion exchange-traded products industry. ETFs offer much lower fees, higher liquidity and tax advantages over mutual funds.

"Investors have been selling expensive funds and buying lower-cost ones, exerting pressure on the industry, in general, and on active managers, in particular, to lower fees in order to stay competitive," Lamy said. "Fees for both active and passive funds have both been going down for the past 20 years. However, there is still a significant fee gap between active and passive for both equity and bond funds."

Bond funds did well for the month, again defying years of "Great Rotation" predictions that money would begin moving in massive quantities from fixed income to equities.

Bonds gained in both the passive and active categories. Taxable bonds pulled in $32.2 billion while municipal bonds gathered $4.3 brillion.


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