Since 2002, more than 3,000 share classes were launched each month.

In a seemingly ever-expanding pool of investment options, asset management firms need a way to showcase their products’ strengths.

Fund flows illuminate shared characteristics of growing investment vehicles that can validate your positioning.

If investor interest in ESG holds steady, firms could consider highlighting how they use environmental, social, and governance criteria in managing clients' assets. If one type of fund is flourishing in one region but stalling in another, firms might rethink where they concentrate their promotional efforts.

You can use this rich global data to:

• Find categories that attracted the most inflows.
• Understand who’s buying from your competitors: institutional investors? Retail investors on the direct market?
• Analyse how your products stack up against influential flow factors.
• Predict impending fund shutdowns.
• Monitor pivots in your competitors’ product strategy.

Fund flows measure changes in newly purchased or redeemed shares over a certain period. Fund flows are the change in assets in a given period not explained by the performance of the investment.

To calculate net flows, Morningstar uses an industry-standard approach. Our process involves comparing a fund’s total assets under management at the beginning and end of a period. Price changes, distributions, and reinvested dividends are then excluded from net flows. From there, we adjust for infrequent corporate actions such as reverse share splits.

Asset flow data intends to show shifts in investor preference with movement between noticeably different investment strategies. When possible, Morningstar offsets outflows caused by movement to another fund with an identical mandate.

To calculate the organic growth rate and show fund flows as a percentage, analysts divide net flows by the total assets under management at the beginning of the period.

Morningstar’s approach assumes that fund flows occur at the same rate over the course of the month. While fund flows are estimates, the difference from the precise total is often negligible. Morningstar will overwrite our estimates with data from managers when available.

Morningstar’s approach assumes that fund flows occur at the same rate over the course of the month. While fund flows are estimates, the difference from the precise total is often negligible. Morningstar will overwrite our estimates with data from managers when available.

With the right analysis, fund flows information can tell a larger story about investors.

Passive vs. active fund flows

Over the last two decades, the U.S. market has undergone a tidal shift from active to passive investment vehicles, but this trend is not reflected globally. At the end of 2023, passive funds accounted for 40% of worldwide long-term assets, and surpassed 50% in the U.S., but beyond the U.S. market, their share was only 26%. European countries including France and Spain, demonstrated a preference for short-term fixed-income funds that are actively managed. What’s more, the bank-centric distribution of funds in many countries results in investors buying shares in actively managed funds, which results in banks selling relatively expensive products to customers.

Asset flows can illuminate corners of the market where active management continues to drive mutual fund inflows. The choice between an active and passive investment strategy is a personal one. Asset flows by distribution channel can help understand the target audience of each approach.

Global fund flows

Fund flows by domicile show how investor behavior differs by country.

With detailed global data, asset managers can make informed decisions on upcoming product launches.

Because funds can contain a range of products—bonds, stocks, alternative assets—fund flows also shine a light on how investors feel about the underlying asset classes.

What investments can weather market headwinds and tailwinds?

ETF fund flows surge

In the first half of 2023, nonindexed ETFs grew at a 6% organic growth rate, representing5% of ETF assets globally. The U.S. dominates the category, with 78% of assets under management residing there.

While they hold a smaller market share, active ETFs have posted an annual organic growth rate of over 25% since 2015. Actively managed ETFs in Asia grew at a 78% rate in the first half of the year (albeit from a small base), the highest rate of any region by far.

The growth in active ETFs defies the broader shift toward passive investing. Active ETFs give investors the benefits of lower expense ratios, transparent pricing, and easy liquidity, paired with the intervention of asset managers.

Active ETFs defied the broader shift toward passive investing.

Alternative funds hold investor attention

Alternative funds diversify portfolios with exposure to different risk factors than stocks and bonds. Some look for growth in any market conditions. Others provide exposure to specific events with their own flavour of risk. Others function like bonds, aiming for small but consistent returns.

Investors can miss out on the defensive benefit of alternative funds by waiting until other investment vehicles suffer before investing.

Alternative funds grew popular in 2020 and 2021 when interest rates were low, and the stock market was booming. In 2022, when asset valuations in the traditional market began to flag, they collected over $25 billion but lost momentum by year-end.

Some alternative funds performed strongly despite a tough 2022, providing shelter from interest rate–sensitive sectors.

In 2023, fixed-income funds were the only category group with inflows, taking in $395 billion.

Inflows ebb for fixed-income funds

Fixed-income funds logged record-breaking paper losses in 2022. Bond funds posted their worst absolute outflows and organic growth rates in over two decades.

While the total 2022 outflows of $476 billion are significant, it looks small against the massive $968 billion inflows of 2021 alone, and even smaller compared to the $6 trillion of inflows into fixed-income funds from 2009 to 2021.

Allocation funds continue to slide

Asset allocation funds target a specific percentage of equity and fixed-income assets to deliver a combination of capital appreciation and income to investors. The category also includes target retirement funds that will rebalance aggressive and conservative investments as owners move closer to withdrawal.

Allocation flows had a disastrous 2023, and the category’s USD 165 billion in outflows were the worst ever on an absolute and organic basis. Asset allocation funds offer diversification but don’t allow for personal adjustments, instead locking investors into one risk tolerance level.

ESG investing trends

Environmental, social, and corporate governance investing has reached the mainstream. But after a year of market turmoil, will investors hold on to their sustainable investments? Do they think of ESG criteria as “nice-to-haves” or essentials?

Asset flows give us context.

Despite—or perhaps because of—the backlash against ESG investing, investors have put more money into sustainable funds than non-sustainable funds for the year to date, though the rate of flows into intentional sustainable funds fell sharply from 2021 to 2022 and fell again in 2023 to a 2% organic growth rate, with inflows of $59 billion. However, sustainable flows remained positive, thanks to $73 billion from Europe and cross-border investors.

Flows can help inform marketing as a window into investor preferences. Do investors choose funds based on their recent performance or low expenses? How can fund managers position their products in line with investor expectations?

Asset flows can also help firms prioritise which funds to promote or deemphasise in which regions. Shift resources to products that reflect investor interest.

Fund flows shed light on AUM trends across major fund families. Find gaps in the competition and discover ways to differentiate your firm.

Asset Flows in Morningstar Direct

Morningstar Direct gives users the data, research, and analysis they need on over 600,000 collective investments. In the platform, asset managers can show how their investment stories relate to the broader markets, compare products with the competition, and present their findings in compliance-friendly reports.

Morningstar’s asset fund flows data contains historical data alongside forecasting models for future growth rates. Direct includes all fund flows data at one price with its performance reporting, presentation, and search capabilities. The Direct team also supports new users with onboarding, training materials, and 24-hour customer service.

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