Nervous investors pulled $60 billion out of stock funds in the third quarter, adding more woes to investment managers who are being battered by a secular movement that continues to exert downward pressure on fees. According to Morningstar, the net outflow amount represents the most money exiting stock funds in any quarter since 2009.
Investors flocked into bond funds and cash amid uncertainty over worsening trade tensions with China, potential fallout over the Brexit crisis and increasing consternation concerning a slowdown in global growth.
The recent investor migration into bond funds bodes ill for asset managers, as fees for fixed-income products are cheaper than those for equity products. The diminishing fees for bond products follows on the heels of a pronounced and inexorable industry trend toward rock-bottom fee structures. Indeed, Charles Schwab (NYSE:SCHW) just fired a shot across the bow of its discount online brokerage competitors with its announcement last week that it is offering customers commission-free online trading.
The third-quarter exodus of approximately $60 billion represents the largest percentage drop for two consecutive quarters since 2011. This is a marked contrast from the prior period last year, when stock funds experienced a net inflow of $20 billion according to Morningstar. Bond funds raked in $118 billion, almost double the net