ETFs' Drain on Mutual Funds Shows No Sign of Slowing

Morningstar report says State Street's year-to-date flows are lagging Vanguard and iShares by a wide margin.

Exchange-traded funds continue to gobble up market share from mutual funds, according to the latest report from Morningstar.

Investors poured a net $69.3 billion into ETFs while pulling $43.2 billion from mutual funds. That continues a longer-term trend, including the first eight months of the year, in which ETFs raked in $588.1 billion and mutual funds bled $217 billion, the report said.

In terms of where the money is going, the data show a growing appeal for fixed income in August as the financial markets braced for the first interest cut by the Federal Reserve in more than four years.

According to the Morningstar report, active and passive taxable bond mutual funds and ETFs combined for $33 billion worth of net inflows in August, effectively carrying mutual fund and ETF inflows to $26 billion in August.

While U.S. equity fund inflows were essentially flat during the month, international equity funds recorded their worst month of the year in terms of asset flows, with approximately $8 billion moving out the door in August.

Municipal bond funds also had a strong month, taking in $5.54 billion and marking the first time more than $5 billion flowed into the funds in consecutive months in three years.

On a year-to-date basis through August, No. 2 issuer Vanguard Group is leading with $174.8 billion in net inflows, followed by BlackRock's iShares, as the No. 1 issuer has hauled in $145.5 billion. State Street, issuer of the SPDR funds and the third-largest ETF manager, has brought in $8.1 billion this year.

Ryan Jackson, senior manager research analyst at Morningstar, attributed the State Street’s woes to a combination of factors, including “the variability of flows into and out of” the popular SPDR S&P 500 ETF Trust (SPY).

Other factors hampering State Street when competing against the likes of BlackRock and Vanguard, Jackson added is the smaller bond ETF footprint at a time when bond ETFs are gaining appeal and a fewer active ETFs.