A sound portfolio management strategy begins with asset allocation – that is, dividing investments among the major asset categories of equities (stocks), bonds, and cash. From there, you and you advisor can then make finer distinctions within each broad category.
For example, within the equity category, you could diversify among large-cap stocks, small-cap stocks, and international stocks; and within the bond category, you could separate short-term and long-term bond investments. Since the various investment categories have different characteristics, they generally don’t rise or fall at the same time. Consequently, combining different asset classes can help balance risk and may improve the overall return of a portfolio.
That being said, which types of mutual funds are seeing the most inflows?
To answer that question, I turned to Morningstar – a leading provider of independent investment research. Here is what Morningstar reported:
In August, investors put $8.5 billion into US Equity passive funds, down from $10.8 billion in July 2017.
On the active front, investors pulled $23.0 billion out of US Equity funds, compared with $19.6 billion in the previous month.
Taxable Bond funds remained the leading category group in August with $27.5 billion in flows overall.
Unlike in June and July, however, active Taxable-Bond fund flows surpassed passive ones: $14.1 billion versus $13.3 billion.
The four Morningstar Categories with the highest inflows in August were:
Intermediate-Term Bond funds; Foreign Large Blend funds; Multisector Bond Funds; and Diversified Emerging Markets funds.
Morningstar also noted that Large Blend funds did not make the top five categories, reflecting less investor interest in US Equity funds.
What Does This Mean?
I see a few reasons for inflows into those categories. First, bond funds are an important part of the asset allocation pie, especially among investors nearing retirement where income might trump growth. Second, while US markets have performed very well in 2017, international and emerging markets have performed even better.
Should you make a change? Call me to discuss.