Fund Investors Need to Cool It With US Stocks

Originally, I was going to write this article about the cold shoulder investors have given US stock funds. Those funds have crushed it, but investors have kind of just shrugged.

To illustrate, the chart below shows the average asset-weighted annual return of funds in the various asset classes over the 10 years ended Sept. 30, 2025.

US stock funds and exchange-traded funds cleaned up, gaining 15.3% per year over this period. Taxable-bond funds, on the other hand, sputtered, earning only 2.9% annually, which didn’t even keep pace with inflation. (“Alternative” funds gained 14% per year thanks to a handful of surging bitcoin funds that launched in recent years, in case you were wondering.)

Now here are the cumulative net flows to open-end funds and ETFs in these asset classes over the decade ended Aug. 31, 2025 (we’re still tallying flows for September).

Wait, what?

That little nub on the far right would be US stock funds, which eked out just $91 billion in inflows over the decade ended Aug. 31, 2025. That’s a pittance considering the $7 trillion in net assets those funds held, on average, during this period. Taxable-bond funds, by contrast, hoovered up $2.8 trillion in net inflows despite negative real returns.

Out of Whack

All that seemed pretty remarkable until I took a look at how the overall split of net assets between US stock funds and other types of funds has shifted over the past decade.

It might not look like much, but that’s a big move. US stock funds started the decade accounting for around $0.41 of every dollar held by funds overall. However, by Aug. 31, 2025, their share had risen to nearly $0.52. This chart breaks out the percentage-point change in each asset class’ market share over this period.

To be sure, US stock funds’ recent market share isn’t a new high-water mark. Domestic-equity funds soaked up around 60% of all net assets 25 years ago amid the tech and internet mania of that era. But it’s the highest it’s been since before the global financial crisis, and the same is true for the market share of all equity funds as a whole.

Too Much of a Good Thing

As I mentioned, investors can’t very well be accused of pushing stock fund assets to these levels. They’ve mostly been indifferent to US stock funds, as the anemic demand for those funds shows. And while they added a net $492 billion in net flows to international-equity funds over the past decade, that’s still dwarfed by the sums that poured into bond funds.

What it comes down to is this: US equity fund assets have appreciated to such a degree that it’s handily outstripped the asset growth of funds in all the other asset classes. Over the decade ended Aug. 31, 2025, domestic-stock funds saw nearly $12 trillion in market appreciation in aggregate compared with around $5 trillion for all other funds combined.

So even without prodigious inflows, US stock funds have seen their piece of the pie expand by sheer virtue of the fact that their assets have compounded much faster than others have.

Now What?

If you’re investing in a target-date fund, I’d be less concerned about this drift toward US stocks. Those funds automatically rebalance to keep the mix of assets from getting off-kilter. You of course want to ensure the target-date fund you’ve chosen is appropriate for your objectives and circumstances. But otherwise you should probably be in decent shape.

For others, it’s time to peek at your holdings. If you’ve had broad exposure to US stocks through a total market index fund, for instance, and left it untouched, count yourself lucky: It has surely grown by leaps and bounds. But it’s also likely to have become a bigger share of your assets than is prudent. If that’s the case, consider trimming it and redeploying the proceeds to areas that haven’t fared as well through the years, like bonds.

This isn’t painless, especially if they’re taxable assets. But it will lessen the portfolio’s overall reliance on, and thus vulnerability to, the US stock market’s fortunes following a prolonged bull market, an issue my colleague Christine Benz addressed recently.

Switched On

Here are other things I’m writing, reading, listening to, or watching:

• Jason Zweig on the potentially large hidden costs of leveraged ETFs; here’s the Hendrik Bessembinder research he references
• Maybe the biggest return gap ever? (Related: I did a livestream with a YieldMax rep about the problems investors have had with their ETFs.)
• ETF firms race to the bottom with raft of filings for 3x single-stock ETFs
• Duh (as the dad of two Swifties) - new Taylor Swift

Don’t Be a Stranger

I love hearing from you. Have some feedback? An angle for an article? Email me at jeffrey.ptak@morningstar.com. If you’re so inclined, you can also follow me on Twitter/X at @syouth1, and I do some odds-and-ends writing on a Substack called Basis Pointing.