The WSJ’s Dawn Lim reports that after a temporary lull, the flood of money moving into passively managed index funds and ETFs has resumed. Lim writes:
A decadelong shift of money and power from old-fashioned money managers into index funds resumed its march in 2019.
Last year, net inflows into funds that track markets fell about 30% from the year before, according to Morningstar data. Some firms said fears around slowing global growth and a particularly volatile stock market led investors to take money from asset management’s most popular products.
The 2018 slowdownwas noticeable at BlackRock Inc., Vanguard Group and other large money managers. It led to concerns from some investors about whether a major growth engine for the firms was sputtering.
But now, a stream of cash into funds that track markets is picking up once again.
The recent pickup came ahead of BlackRock and State Street Corp. reporting earnings Friday morning. A rise in flows could help soften the impact of a continuing price war.
Net inflows into index-tracking U.S. mutual funds and exchange-traded funds rose by around 50% in the second quarter of 2019 from a year earlier, according to Morningstar data. For the year ended June 30, passive net inflows increased by about 1% after contracting in the year-ago period. Net inflows measure the difference between money coming in and leaving.
It’s hard to see how the billions of dollars flowing into funds that pay no attention to value can be healthy for efficient capital allocation, but after a ten-year bull market, nobody wants to hear it.
One might blame easy money, lazy financial advisors, or mutual fund firms who abused their clients with high-fee funds for decades for the trend. But none of that changes the fact that doing what’s popular on Wall Street has historically been detrimental to one’s financial health.
Jeremy Jones, CFA
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