Weak inflows dampen prospects for recovery in struggling active funds

US active asset managers are facing a tough time as investors shift their focus towards index tracking funds, leaving traditional mutual funds behind. According to Morningstar Direct, active mutual funds saw outflows of over $50 billion in the first quarter of the year, impacting major asset managers like Capital Group, T Rowe Price, and Franklin Templeton.

Despite efforts by active managers to highlight positive aspects of their strategies, the reality remains grim. Brennan Hawken, a UBS research analyst, noted that even top active managers are struggling to attract significant flows, with no clear path to improvement in the near term.

The trend of outflows from active managers has been persistent, with negative overall monthly flows for 30 consecutive months, totaling nearly $1.7 trillion in investor withdrawals. This has dampened hopes for a revival in stock and bond picking strategies in 2024, despite the lowest quarterly outflow total since late 2021.

While some passive investment groups like Vanguard have seen strong inflows, others like BlackRock and State Street Global Advisors have faced challenges in sustaining flows. Additionally, high interest rates have led to record inflows into money market funds, further impacting asset managers.

Despite the tough market conditions, some firms like T Rowe Price and Franklin Templeton are optimistic about a turnaround in flows. T Rowe Price expects flows to turn positive in 2024 after a challenging year in 2023, while Franklin Templeton is banking on its alternatives business to attract new capital.

Overall, the shift towards passive funds and ETFs is reshaping the asset management industry, with active managers facing increasing pressure to adapt to changing investor preferences.