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January 22nd, 2019

2018 Market Volatility Causes Equity Outflows

By Mark Bell

Investment Metrics Releases 2018 Preliminary Assets Gains & Net Flows Summary

Institutional investors’ view of equity markets in 2018 was one of trepidation. This prompted a very difficult year for equities with all geographic areas saw negative returns for the year (based on their respective indices). Utilizing Investment Metrics asset manager database, we reviewed the preliminary flows into and out of active equity and fixed income portfolios. Active United States equity strategies continued to see outflows in 2018 ($179B), similar to 2017, despite having the best relative performance to other areas of the equity market. Active US large-cap equity portfolios made up the lion’s share of outflows. Many active managers in the US large-cap equity space are dealing with pressure from underperformance, passive, and a shift to global equity.

2018 preliminary asset gained and new flows January 2019

When reviewing reported assets gained to the Investment Metrics asset manager database, US fixed income was the clear winner ($191B), demonstrating institutional investors’ desire to lower their portfolio risk in 2018. Additionally, global large-cap equity managers saw $13B of reported assets gained for the calendar year.

The active manager preliminary performance in 2018 within equities was not particularly impressive, adding to the argument for institutional investors to go passive in public equities. At a median level, the only peer group to outperform its benchmark was US small-cap equity. However, in this down market, many active managers were able to demonstrate their stock-selection capabilities and ended up in the top quartile against peers. For instance, within US Small-cap equity the top performing portfolios were high-conviction fundamental managers. Surprisingly, the inefficient international small-cap equity peer group had the worst relative performance, at a median level, to the MSCI EAFE small-cap index.

2018 preliminary asset gained and new flows table January 2019

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