| NEW YORK
NEW YORK Dec 27 Financial pundits shouted about
record high levels for the stock market in 2016, but for
actively managed stock mutual funds there was another record,
one they would rather keep quiet: the largest amount of net
withdrawals ever recorded.
Benchmark equity indexes hit fresh peaks and the S&P 500
is on course for an eighth consecutive year of positive
total returns. However, in the battle between active and passive
funds to grab investment dollars in a record price environment,
there was no contest.
U.S.-based actively managed stock funds suffered $288
billion in withdrawals year-to-date through November, the
largest on record, according to Thomson Reuters Lipper service.
The figure tops outflows of $139 billion in 2015 and $218
billion in 2008.
On the passive side, stock index mutual funds and equity
exchange-traded funds each attracted about the same amount of
new cash, more than $112 billion apiece in 2016, Lipper said.
Just 33 percent of active stock managers beat their
benchmark this year, according to investment bank Jefferies,
driving investors to lower-cost funds and ETFs that try to track
indexes, rather than try to beat them.
"If we don't see that in 2017, chances are you've run out of
excuses, and the market will simply come to the conclusion that
markets are too efficient for the number of active managers that
are out there, and the industry as a whole will need to shrink,"
said Jefferies analyst Surinder Thind, who covers asset
Performance will have to improve to bring investors back,
according to Thind.
Withdrawals came from some of the industry's best-known
actively managed funds.
Investors pulled $8.3 billion from the Will Danoff-managed
Fidelity Contrafund. American Funds' Growth Fund of
America had a similar net withdrawal, representing
more than 5 percent of the funds' assets when the year began.
Outflows of $6.4 billion cost Fidelity Growth Company Fund
, managed by Steve Wymer, more than a seventh of its
assets, the data shows.
"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
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.
BOND FUNDS HOLD GROUND
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
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,
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?"
(Reporting by Trevor Hunnicutt; Editing by Daniel Bases and