Morningstar Magazine - August/September 2018 - 79

FUND FLOWS SPOTLIGHT

Pure Passive Funds More Popular Than Strategic Beta
Over the past year through May, active U.S. equity
funds have had outflows of about $195 billion,
versus passive inflows of $174 billion. But there was
also a similar divide within passive funds
themselves: Most passive inflows have gone to
broad-based market-cap-weighted index funds, both
open-end and exchange-traded, rather than
to strategic-beta funds. Strategic-beta funds are

in some ways akin to active funds, as they focus
on factors such as value, growth, and low volatility
in order to beat broad-based indexes.
During the past 12 months, $130 billion went
to nonstrategic-beta passive U.S. equity funds-
mostly market-cap-weighted index funds-
while about $44 billion went to strategic-beta funds.

Overall market share between these two groups
roughly mirrors their share of inflows:
Strategic-beta funds claim about 20% of passive
U.S. equity assets.
Kevin McDevitt is a senior analyst with Morningstar
Research Services.

Passive U.S. Equity Flows

Nonstrategic Beta

Strategic Beta
$50M
40
30
20
10
0
-10
-20

2015

2016

2017

2018

Source: Morningstar Direct Asset Flows. Data as of 05/31/2018.

Active Versus Passive Fund Strategies The percentage of U.S. actively managed funds that outperformed their respective Morningstar Style Index.
< 20%

Index Returns (06/30/2018)

10.2

54.9%

10.5

30.8%

20.5

67.5%

10.4

64.6%

12.6

41.6%

23.7

Core

Growth

9.7

24.3%

11.1

16.3%

15.2

2.0%

11.5

30.5%

8.7

38.7%

10.7

52.8%

9.2

50.3%

9.4

35.5%

11.8

Value

Core

Growth

52.2%

10.0

33.1%

12.5

8.8%

17.7

4.6%

12.9

12.4%

12.4

33.6%

13.4

Mid

31.8%

23.2%

40.4%

10.8

35.2%

11.8

33.3%

13.7

Small

27.2

Large

15.7%

Mid

7.6

Small

89.0%

Large

8.8

5-Year

Mid

3-Year

50.5%

Value

> 40%

Small

1-Year

20 to 40%

Value

Core

Large

Percentage of Actively Managed Funds Outperforming Index:

Growth

global.morningstar.com/Morningstarmagazine

79


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