Next Cycle For Active Outperformance?
"Flows are a lagging indicator that will improve as the market enters the next cycle for active outperformance—which we believe we may be seeing," said Fidelity spokesman Charlie Keller.
As the equity rally has matured, stocks have started to move independently from one another, which active managers say creates new opportunities.
"It's less about interest rates and geopolitics and maybe more about what's happening in Company A's income statement versus what's happening in Company B's income statement," said David Lafferty, chief market strategist at Natixis Global Asset Management in Boston.
U.S. stock prices rebounded from a February low but stalled heading into the November election. President-elect Donald Trump's promises to cut taxes and financial regulations fueled a record-breaking rally.
Bond Funds Hold Their Own
In contrast, bond prices fell on fears those policies could unleash inflation, the bane of the fixed-income market. Even so, those concerns have not erased the net inflows for bond funds that accumulated through the first 10 months of the year.
In fact, both active and passive bond funds together in 2016 took in the most cash in three years.
Active bond mutual funds gathered $103 billion, while passive bond mutual funds and fixed-income ETFs took in $145 billion, Lipper said.
The money flowing into bond funds coincides with the U.S. Federal Reserve's interest rates rising from historic lows. While that could be a brake on economic growth, it does offer yield-starved investors some relief, but perhaps not enough.
"Investors are going to take a look at this sharp move in interest rates," said Jefferies' Thind. "Do they really want to be in bonds when we are potentially in a risk-on environment?"