What Fund Investors Did With Their Money in the Second Quarter

For the second consecutive quarter, investors flocked to taxable bond funds and pulled money out of U.S. stock funds. Those flows ran counter to performance during the quarter, which was mixed for bond returns and strong for stocks.

Within the U.S. stock market, value stock funds saw large outflows, and a stellar quarter for growth stocks didn’t prevent investors from pulling money from those strategies. Among bond funds, intermediate-core and long-term funds saw significant inflows.

Still, inflows to money market funds continue to outpace those to long-term funds, as the highest yields in many years attracted investor cash.

Quarterly Asset Flows

Money Market Inflows Remain Elevated

Though worries have eased around a regional banking crisis, which had spurred savers to move their money out of banking accounts and into money market funds, investors added to the $424.1 billion they stashed in money market funds in the first quarter. They moved $174.1 billion into money market funds, bringing total assets to a new high of $5.5 trillion.

Long-Term Vs. Money Market Fund Flows

Intermediate-Term Core, Long-Term Bond Funds See Inflows

Higher yields also continued to attract investors to taxable bond funds, which saw $72 billion of net inflows in the second quarter. With investors anticipating the end of the Federal Reserve’s interest rate hikes, intermediate-term and intermediate-term core-plus bond funds saw the largest inflows. Combined, the categories saw $59.6 billion of inflows.

Among individual funds, the $347 billion Vanguard Total Bond Market Index VBTIX collected $17.7 billion, and the $93.1 billion iShares Core US Aggregate Bond ETF AGG recorded more than $5 billion of inflows.

Long-government and intermediate-government funds also saw meaningful inflows, taking in $12.1 billion and $7.9 billion, respectively. Among long-government funds, the $41.2 billion iShares 20+ Year Treasury Bond ETF TLT collected $6.2 billion.

As investors leaned into longer-term bonds, they’ve pulled money out of short-term bond funds and bank loan funds. Short-term bond funds experienced $14.8 billion of outflows during the second quarter, and bank loan funds saw $7.6 billion of outflows.

Inflation-protected bond funds have also fallen out of favor, with the category posting its fifth consecutive quarter of outflows.

Quarterly Taxable Bond Fund Flows

Value and Growth Funds Post Outflows

Even with the U.S. stock market posting a strong rally this year and potentially entering a new bull period, investors continued a recent exodus from U.S. stock funds. They pulled $25.5 billion from the group, which brings year-to-date outflows to $71.7 billion.

Both growth and value funds saw large outflows, and only blend Morningstar Categories avoided outflows. Large-blend funds collected $36.6 billion; $19.4 billion went into the $424.3 billion SPDR S&P 500 ETF SPY and $13.8 billion into the $331.2 billion Vanguard 500 Index VFINX.

Passive growth stock funds were still taking in money. The $62.8 billion JPMorgan Large Cap Growth SEEGX collected $6.7 billion, and the $210.7 billion Invesco QQQ QQQ gathered $3 billion.

However, outflows from active growth stock funds picked up steam. The $55.9 billion T. Rowe Price Blue Chip Growth TBCIX experienced $5.7 billion of outflows, and the $107.9 billion Fidelity Contrafund FCNTX saw $2 billion leave.

Both passive and active value funds experienced large outflows. The $100.5 billion Vanguard Value Index VIVIX shed $6.3 billion, while the $92.6 billion Dodge & Cox Stock DODGX saw $1.4 billion leave.

Style Box Q2 2023 Organic Growth Rates (%)

Energy and Real Estate Funds Lead Outflows

Value-oriented sectors, including energy and real estate, experienced the largest outflows among sector funds. The $33.5 billion Vanguard Real Estate Index VGSIX saw a $1.1 billion exit, while the $596 million First Trust Materials AlphaDEX ETF FXZ experienced $1.1 billion of outflows.

Investors instead sought technology and communication sector funds, which hold some of this year’s high-flying stocks, such as Tesla TSLA and Nvidia NVDA. The $13.1 billion Communication Services Select Sector SPDR XLC saw $1.7 billion of new money.

Quarterly Sector Fund Flows

International Stock Funds See Inflows

Overall, investors stuck with international equity funds, though most of the new money was directed to foreign large-blend funds. As a group, they collected $6.8 billion, and the $117 billion Vanguard Developed Markets Index VDVIX gathered $3.3 billion.

As Japanese stocks reached new highs, investors poured into Japanese stock funds. Nearly $5 billion went into the category; the $13.3 billion iShares MSCI Japan ETF EWJ gathered $2.9 billion.

International Equity Fund Flows

Active Outflows Hurt Vanguard

Lifted by strong inflows to passive U.S. equity and bond funds, iShares saw the largest gains in net new money among the biggest fund families during the second quarter. iShares collected $27.6 billion, and State Street was not far behind with $26.6 billion of inflows. Both firms grew by more than 2% in the quarter just from inflows.

Although it was hurt by outflows from active U.S. equity and allocation funds, Vanguard still collected $11.2 billion during the second quarter. But the long-time flows champion landed in fourth among the largest firms.

American Funds experienced the largest outflows, as $15.1 billion left the firm.

Q2 2023 Fund Family Flows