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Jul 31, 2022

Equity funds eke out positive inflows during first half of 2022, finds report

Inflows likely down to rebalancing, rather than investors buying the dip, says Morningstar

Despite a range of macro headwinds, the war in Ukraine and a bear market in stocks, equity funds eked out positive flows on a global basis during the first half of 2022, according to new research from Morningstar.

During the first six months of the year, equity funds recorded $131 bn of inflows, a rise of 0.47 percent, says the research firm. Investor appetite moderated strongly during the half-year, however, with $180 bn of inflows in the first quarter and $49 bn of outflows in the second quarter.

Stock markets have suffered heavy falls in 2022 amid conflict in Europe, searing inflation, slowing growth and rising interest rates. At the end of June, MSCI’s All-Country World Index was down 20 percent for the year, its worst performance on record.

Morningstar analysts cautioned against viewing the positive inflows to equity funds as an attempt by investors to take advantage of lower valuations, pointing instead to the need for institutions to rebalance portfolios to stick to their mandates.

‘This is likely explained [more] by US-domiciled funds’ programmatic rebalancing within target-date funds, models and advised portfolios rather than retail investors buying the dip,’ they write.

Fixed-income flows

Fixed income had a tougher six months – an unsurprising result given surging inflation. Globally, this category saw $332 bn of outflows, a drop of 2.8 percent, with negative flows accelerating during the second quarter, says Morningstar.

The report notes that, while fixed-income outflows this year have ‘certainly been large in magnitude’, they are small compared with the huge $6 tn of inflows recorded between 2009 and 2021.

‘Flows into the asset class over the past decade were driven less by a desire for bonds than a need to diversify,’ write the authors. ‘As equity returns soared, so did their allocations within portfolios. Massive purchases of fixed-income strategies were required to maintain balanced portfolios.’

Looking across all Morningstar’s global categories, US equity large-cap blend funds achieved the highest inflows during the first half of 2022, pulling in $102 bn. US equity large-cap value, meanwhile, saw inflows of $56 bn.