Fund Flows Drop in Slow Summer for ETFs

U.S. mutual funds and exchange-traded funds lost a combined $24 billion in August.

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Finance Reporter
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Reviewed by: etf.com Staff
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Edited by: Mark Nacinovich

While inflows into funds declined mildly in August as investors increasingly pulled money out of equity funds, the proliferation and performance record of active ETFs continued to supercharge asset management giants like J.P. Morgan.  

U.S.-based equity funds saw the biggest outflows among fund categories in August, as investors drained over $20 billion out of the exchange-traded funds and mutual funds, according to Morningstar Inc.’s August U.S. Fund Flows report. So far in 2023, investors have pulled $90 billion from equity funds, according to Morningstar. Overall, ETFs and mutual funds lost a combined $24 billion over the month, a mild loss in light of their combined $25 billion in assets.  

“For so long, we were operating in this environment where equities were the only place you’re going to find [significant returns],” Morningstar analyst Ryan Jackson said. “Yet now, here we are at the other end of an aggressive rate hiking cycle that we’ve seen unfold and all of a sudden you can get attractive deals out of a fixed income portfolio that is inherently going to be less risky.” 

Within equities, sector funds have taken a $7 billion hit. As value stocks disappoint, investors are increasingly turning to high-flying tech funds.  

While short-term bonds continued their 21-month outflow streak, intermediate-core bond funds were more attractive to investors this summer. Taxable bonds drew in $11 billion, according to Morningstar.  

J.P. Morgan, the asset management behemoth with the largest active ETF, drew in $37 billion from investors thanks to its expansion into active management. The firm runs the biggest active fund, the JPMorgan Equity Premium Income ETF (JEPI). 

Active ETFs Outperform Passive Funds

As investors increasingly turn toward active funds as a compelling alternative to low-cost broad indexes and more pricey mutual funds, the investment vehicles have also improved in performance. According to a Morningstar report, 57% of active strategies beat their passive counterparts over the year through June 2023, an increase from their 43% success rate in the full calendar year for 2022.  

“I don't think it's time to sound the alarm saying that passive funds are out and active management is now the way to go unequivocally,” Jackson said, noting that over longer periods, such as the past 15 years, it’s far harder for active managers to prove they beat their benchmark indexes. 

While active ETFs are gaining steam, they still represent a miniscule percentage of active funds on the whole. “At the end of the day, active ETFs still constitute just a small percentage of the overall active fund market, I'd be surprised if it was meaningfully swaying those overall results,” Jackson said.  

Lucy Brewster is a finance reporter at etf.com covering asset managers, emerging technologies, and regulation. She hosts etf.com webinars and appears on Exchange Traded Fridays, etf.com’s flagship podcast. She previously was a finance fellow at Fortune Magazine where she covered markets, investment strategy, and venture capital. She has also been a freelancer writer at the publication Mergers & Acquisitions and a research fellow at the Historic Hudson Valley. 

She graduated from Vassar College in 2022 with a degree in History and was an editor of The Miscellany News, the college's award winning student run newspaper. 

Lucy lives in Brooklyn, NY, and in her free time she loves to run and find new recipes to cook.