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March saw record outflows of $326 billion from long-term mutual funds and exchange-traded funds as the COVID-19 pandemic spurred the fastest bear market for equities in stock market history, according to Morningstar data.
By comparison, the largest spike in monthly outflows during the 2008 financial crisis was $104 billion.
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While total fund flows were dramatically negative, U.S. long-term equity funds saw $10.5 billion of net inflows during March. Nearly all of it was parked in passively managed funds, which attracted $41 billion. Actively managed funds continued their sustained outflows—in March they lost $31 billion. Active funds experienced outflows for the 109th month of the last 120.
Commodity funds were the only other to see positive flows in March, at $3.8 billion. Taxable bonds suffered a whopping $240 billion in March outflows.
The flows to U.S. equity funds and commodity funds came as stock markets were in free fall and demand for energy effectively ground to a halt, leaving the word awash in oil supplies.
"We don't have a lot of look-through on what explains the flows to U.S. equity funds and commodities," said Tony Thomas, a senior analyst at Morningstar. "Some of the demand can come from rebalancing—equities had such a sharp fall that some funds may have needed to rebalance back to equities. Obviously, there may have been some bottom-fishing too."
Passive funds attracted cash, while some market watchers are predicting COVID-19's impact on the economy—retailers have been mostly decimated while shares of Amazon hit record highs—will make active management en vogue.
"People may be turning to broad market exposure for the rebound instead of trying to pick winners and losers," said Thomas.
The hemorrhaging of taxable bond funds could be a bad sign for corporate balance sheets, as about 20 percent of the overall fixed-income market is corporate debt.
"I can't speculate on how much these flows would impact corporate balance sheets directly. Still, one might say that the outflows from taxable-bond funds suggest that investors are having some questions about companies' ability to pay their debts if there's a steep, prolonged economic shutdown," said Thomas.
"And if there's lower demand for corporate debt, companies could have to offer higher yields to lure investors," he added.
The top 10 active fund managers all saw outflows in March, with PIMCO, Vanguard, and Fidelity losing the most, at $26.5 billion, $25.9 billion, and $24.3 billion, respectively.
All but two of the top 10 managers saw outflows from passive funds. State Street Global Advisors' SPDR S&P 500 ETF attracted $23.9 billion. T. Rowe Price's passive funds attracted $2.4 billion.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
