I came across some fund data from Morningstar recently (Exhibit 1) and found some of it quite surprising and interesting. The table includes U.S. open-end mutual funds and ETFs.
Exhibit 1 – Assets Under Management by Category ($ billions, May 2015)
Here are my observations in no particular order:
- There is almost $15 trillion invested in U.S.-based mutual funds and ETFs (over $17 trillion if you include money market funds).
- Over 30% of total assets are now invested in passive strategies. That’s up from about 11% in 2000 as can be seen in my prior post Indexing U.S. Stocks – Broad Market Exposure.
- For all the hype, there is still “only” $210 billion in the Alternative category, or roughly 1.4% of total AUM. 77% of that money is actively managed, which makes sense given the hard-to-define nature of the space.
- I’m glad to see that there is less than $90 billion in commodity funds – personally I don’t think most individual investors need any in their portfolios.It also has the highest share of passive assets at 2/3rds with most people content to have indexed exposure.
- I was surprised at the amount of money in sector funds ($788 billion). Digging in a little deeper, turns out that about quarter of that is in Health funds which have seen huge inflows after strong performance (particularly in biotech space). Real estate & technology are two other large sectors. Almost half of sector equity is indexed as investors often just seek exposure to a theme instead of picking stocks.
- Taxable bond accounts for 21% of total AUM which seems low to me. I suspect this is because many people are buying individual bonds in anticipation of rising rates (I don’t agree that it makes much difference, but that’s a topic for another post). Passive proportion here is higher than I expected at 24% – Vanguard Total Bond Index is the largest bond fund after all. There is a total of $1.1 trillion in Intermediate-Term Bond funds of which $145 billion is in Vanguard’s index. It’s still crazy to think that at its peak in April 2013 PIMCO Total Return had $290 billion (now down to less than $100 bn)!
- Muni Bonds is a pretty small space with 4% of AUM. Again, there is probably a lot more money invested in individual bonds. And at 3% indexing barely registers here.
- Allocation/Balanced funds account for 8% of total but there is a catch – this category has many funds of funds. For example, popular target date funds from T. Rowe Price and Vanguard contain a line-up of funds from those companies. So even though Vanguard Target Retirement 2020 has $32 billion in AUM, it gets counted in underlying categories in the table above (i.e. Vanguard Total Stock Mkt Index in U.S. Equity gets $32 bn x 40% = $12.8 bn of AUM credit). Same goes for many Lifecycle allocation funds. This also explains why only 4% in indexed – only active funds that pick their own stocks & bonds are counted here.
- U.S. and International equities are large categories and have 39% and 34% passive shares respectively. This number continues to go up given very poor performance of active managers in the past few years. But of course, there is bound to be a “stockpicker’s market” one of these years 🙂
In the next post I plan on digging into the recent flows in/out of these categories.
P.S. Stay a while and check out our new website! We spent the past few months working with a graphic designer and a developer, both of whom are very talented. The new site has a great modern look, is mobile-friendly and designed with our clients and readers in mind. Make sure to look at those cute kid pictures on about page (hover over professional photos).