Vanguard active funds suffer bloodiest first-half on record

Vanguard’s active mutual funds had their bloodiest first half ever, data indicates, even as its passive products enjoyed inflows.

Investors pulled $54.3bn from the firm’s 71 active mutual funds during the first six months of 2022, the most of any fund complex, according to Morningstar Direct, and the worst it has ever recorded on its database, which goes back to 1993. Vanguard active mutual funds had $1.2tn in assets at the end of June, a huge increase on the $77bn such vehicles held in 1993.

Around half of the manager’s first-half outflows came out of five mutual funds, the database shows, including from the $46bn International Bond Index Fund, which shed $24.1bn, and the $73.4bn Intermediate-Term Tax-Exempt Fund, which leaked $9.93bn.

Vanguard’s passive mutual funds, which had $3.2tn in assets as of June 30, garnered $3.1bn in net inflows during the first half, according to Morningstar Direct, and its $1.8tn ETF line added $103.2bn during the period.

Across all its US products — which include ETFs, mutual funds, collective investment trusts and stable value funds — the firm pulled in $77.1bn in net inflows during the first half, according to data provided by the company.

“Vanguard has some of the biggest active funds out there, so you would expect that just on a plain dollar basis, they would have some of the biggest outflows,” said Daniel Wiener, chair of Adviser Investments and editor of the Independent Adviser for Vanguard Investors.

Only American Funds and Fidelity have more assets in active mutual funds, according to Morningstar.

Another factor that may have played a role in the net outflows from Vanguard’s active funds is the fact that there is a limited opportunity for new flows to come in, said Alec Lucas, a strategist on Morningstar’s manager research team. Vanguard’s $64bn Primecap Funds, for example, has been largely closed off to new investors. “The most attractive options in this suite of actively managed funds have limited to no availability for new flows,” Lucas said.

A Vanguard spokesperson declined to comment.

Industry-wide, active mutual funds recorded redemptions of $454.2bn during the first half, Morningstar data shows. Only five of the 50 largest providers of actively managed mutual funds recorded net inflows during the first half, according to a recent Ignites analysis.

Together, the five asset managers which suffered the greatest outflows, in descending order — Vanguard, Fidelity, Pimco, Franklin Templeton and T Rowe Price — recorded $164.6bn in net redemptions during the six-month period, according to Morningstar.

Fidelity, which had $1.2tn in active mutual funds at the end of June, recorded $35.5bn in net outflows from its active funds during the first half, Morningstar’s data shows. Nearly all of those flows, $31.3bn, came out of the Boston-based firm’s US equity funds, which account for more than 51 per cent of its total net assets in active mutual funds.

“Only actively managed funds offer investors the opportunity to outperform the market over time, while most index funds underperform the market net of fees,” a Fidelity spokesperson said. “We also believe that investors want access to a diverse set of investment styles, capabilities and low-cost investment vehicles.”

Fidelity’s passive mutual funds, which had $876bn in assets as of June 30, added $50.5bn in net inflows during the first half, according to Morningstar. Its $28.8bn ETF line, meanwhile, added $1.2bn.

T. Rowe Price had $22.7bn in net outflows from its active mutual funds in the first half, but added $131mn to its suite of ETFs, which are actively managed strategies. The firm reported $7bn in assets shifting to from mutual funds to other vehicles, such as collective investment trusts, during the period.

*Ignites is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignites.com.