Domestic equity-focused funds are facing a tougher time in terms of fund outflows than what they experienced during the financial crisis. According to Morningstar data, US-focused mutual funds and exchange traded funds have seen $78.8 billion worth of outflows in the first seven months of 2015. This is higher than any full year outflows since 1993. Continued transfers from open-end mutual funds to collective investment trusts at Fidelity triggered much of the outflows.
In contrast, investors have poured $179.2 billion in these seven months into funds focused on international equities. This is close to the full-year peak of $201.6 billion recorded in 2013.
In response to this outflow, we will pick 3 top-ranked funds for investors interested in Foreign mutual funds. Before doing so, let’s look into some other details.
US versus International Markets
International markets have attracted investors backed by the improving conditions. Greece debt negotiations had been a concern through most of 2015’s first half, but Europe as an investment destination had other attractions. The monetary stimulus plan for example. China had a great Bull Run, before it hit a rough patch in June though. Japan too has been profitable and Japan equity funds notched the best gains in first half of 2015.
As of Jul 31, the Standard & Poor’s 500 (.INX) returned 2.2%. In contrast, MSCI EAFE Index had returned 6.5%. Morningstar notes that the consensus opined that the US is in late stages of bull market. Foreign country stocks are said to be cheaper on a fundamental level. Investors are aware of the US and Europe’s ‘different points in the economic cycle’, which is being revealed in the flows.
The fund outflows in 2015 so far has been worse than that of the recession years. Since 2007, US has witnessed outflows 6 times (including YTD 2015). International equity funds have witnessed outflows only once in 2008.
Active versus Passive Fund Flow
