Assets continued to flow out of tax-exempt equity and fixed-income products in 2012, while higher-yield-seeking strategies saw the bulk of inflows, according to the annual Style, Trends, Analysis and Research report from Callan Associates Inc.
Both active and passive equity and fixed-income strategies saw outflows in 2012 for tax-exempt products, which comprise separate accounts and commingled funds. On the mutual fund side, active equity funds saw outflows, but there were significant asset flows into equity index funds and exchange-traded funds as well as active and passive fixed-income funds.
“It's not anything a long equity manager wants to see. It's certainly a challenge for long U.S. equity managers on the tax-exempt side,” said Judith McKinney, Chicago-based executive vice president, manager of Callan's institutional consulting group and co-author of the report.
Ms. McKinney said most of the outflows on the tax-exempt side are going into alternative strategies; Callan's report deals only with equity and fixed-income strategies.
Active U.S. equity strategies lost about 12% in assets, while index funds lost more than 5% on the tax-exempt side. Active and passive international equity lost 4% and 6%, respectively, excluding global equity and international small cap. All U.S. fixed-income categories outside of index funds and long-duration strategies lost assets in 2012.
Ms. McKinney said Callan has seen “extensive” flows into passive strategies in recent years, so expected a slowdown this year.
Emerging markets debt had inflows of $3.6 billion, or 10% growth, the largest percentage gain on the tax-exempt side, followed by global fixed income, small-cap international equity and global equity.
Active equity mutual fund strategies lost about $190 billion in assets; only emerging markets equity saw positive flows. However, passive equity funds and ETFs gained about $80 billion. Active U.S. fixed income gained $35 billion, while passive funds and ETFs gained another $42 billion.
While trends among tax-exempt flows continued from 2011, it was a different story for mutual funds. In 2011, actively managed U.S. and international equity funds had modest positive flows, with the exception of large-cap core, while broad market fixed income lost about 4% of AUM.
High-yield fixed income had a $21 billion, or 10.5%, gain in mutual funds, while emerging markets debt and equity gained $15 billion each for increases of 51.3% and 8.4%, respectively.