FUND FLOWS SPOTLIGHT U.S. Investors Turn to International-Equity Funds Both U.S. and international stocks had strong returns in 2017, with emerging-markets benchmarks in the lead. Fund flows didn't necessarily follow performance. As of the end of November, international-equity funds had attracted $18.7 billion (with the bulk of the flows to passive funds). U.S. equity funds saw overall outflows of $1.4 billion, as $16.6 billion in passive inflows were offset by $17.9 billion in active outflows. Investors showed a strong preference for foreign large-blend funds, which are focused primarily on Europe. European growth forecasts continue to look attractive, and investors are following those prospects despite ongoing Brexit negotiations and some political turbulence in Spain. Meanwhile, Alina Lamy is a senior analyst in Morningstar's quantitative research group. 2017 International and U.S. Equity Monthly Flows $40B U.S. Emerging Markets Foreign Lg Blend Other Developed Markets 30 20 10 0 -10 -20 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Source: Morningstar. Data as of 11/30/2017. Active Versus Passive Fund Strategies The percentage of U.S. actively managed funds that outperformed their respective Morningstar Style Index. 13.0 16.2% 19.9 38.2% 25.7 51.8% 8.4 42.5% 13.2 41.1% 23.8 Core Growth 10.5 13.2% 11.3 25.1% 12.9 9.9% 11.3 26.5% 9.9 45.6% 9.9 57.7% 8.2 35.3% 9.8 40.2% 10.6 Value Core Growth 44.4% 13.7 3.0% 16.8 21.0% 16.8 0.0% 16.9 16.1% 15.4 39.6% 14.4 Mid 50.5% 13.6% 37.9% 13.6 24.6% 14.3 44.8% 14.5 Small 31.1 Large 28.1% Mid 22.4 Small 24.8% Large 15.1 5-Year Mid 3-Year 64.5% Value Index Returns (12/31/2017) Small 1-Year p < 20% p 20 to 40% p > 40% Value Core Large Percentage of Actively Managed Funds Outperforming Index: Growth global.morningstar.com/Morningstarmagazine 79http://global.morningstar.com/Morningstarmagazine