Retreat From U.S.-Stock Fund Managers Accelerates – WSJ – WSJ

Retreat From US-Stock Fund Managers
Instead money into US large-cap indexes. Int’l & small-cap managers still popular


Yes, investors are still sinking money into U.S. stocks. But
increasingly they are doing it through traditional index mutual funds
and exchange-traded funds that track a specific market benchmark or
sector, without the variability of a fund manager’s hand. While active
stock funds have been seeing uninterrupted outflows, passive
U.S.-stock funds have collected inflows for eight months in a row.

Meanwhile, other broad categories are booming, too. Investors are
piling into bond funds and both active and index international-stock

“Active management has never been in worse repute,” says John
Rekenthaler, vice president of research at Morningstar. “This is the
darkest of days.”

Investors are sour on active U.S.-stock managers for good reason:
performance, or the lack of it, particularly during the 2008-09 U.S.
market slide.

Big institutional investors, meanwhile, determined long ago that
managers’ inconsistent results don’t justify their higher fees, and
pledged allegiance to lower-cost indexing.

In addition, many investors have flocked to bond funds and given
investment dollars to international stock-fund managers who, unlike
U.S.-stock managers, haven’t broken their trust.

Actively run international-stock funds, particularly small-cap stock
portfolios, have been relatively more successful at adding value over
an index than their U.S.-stock peers.

According to S&P Dow Jones Indices, 30% of international stock-fund
managers topped their benchmark in the five years through June, while
32% of emerging-market managers and 54% of international small-cap
managers did so.

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