Fund Flows During COVID-19

Sean Collins

Chief Economist

Investment Company Institute

May 27, 2020
Overview

»Importance of funds to households and financial markets

»COVID-19: Massive real shock that impaired financial markets

»Government acted to restore flow of credit

»Fund flows reflected market conditions

»Conclusions

May 27, 2020 Fund Flows During COVID-19 1
Importance of Funds to Households and 

Financial Markets

May 27, 2020 Fund Flows During COVID-19 2
Funds Are a Key Savings Vehicle for Households

Assets in registered 

investment companies

$23 trillion

Share of household financial 

assets held in funds

23%

Number of Americans 

owning mutual funds

102 million

Proportion citing retirement saving 

as primary financial goal

73%

May 27, 2020 Fund Flows During COVID-19 3
Fund Assets Are Spread Across Markets

Domestic equity funds: 

$8.6 trillion (38%)

World equity funds:

Bond funds: $2.9 trillion (13%)

$5.2 trillion (23%)

Money market funds:

$4.3 trillion (19%)

Hybrid:*

$1.4 trillion (6%)

May 27, 2020 Fund Flows During COVID-19 4

Percentage of assets, March 2020

*This category includes ETFs—both registered and not registered under the Investment Company Act of 1940—that invest primarily in commodities, currencies, and futures.

Source: Investment Company Institute

US mutual fund and ETF total net assets: $22.5 trillion
Funds Channel Households’ Savings to Companies, 

Federal Government, and Municipalities

May 27, 2020 Fund Flows During COVID-19 5

Percentage of total market securities held by registered investment companies, 2019

* Includes US and foreign corporate bonds, as reported by Federal Reserve Board

Sources: Investment Company Institute, Federal Reserve Board, and World Federation of Exchanges 

24 17 13

25 25

8

4

1

4

68

79 86

71 75

US equity Corporate bonds* Treasuries & agencies Muni securities Commercial paper

Mutual funds Other RICs Other investors
COVID-19: Massive Real Shock that 

Impaired Financial Markets

May 27, 2020 Fund Flows During COVID-19 6
COVID-19: A Massive Shock to Real Economy 

-40

-30

-20

-10

0

10

20

1948195019521954195619581960196219641966196819701972197419761978198019821984198619881990199219941996199820002002200420062008201020122014201620182020

Fund Flows During COVID-19 7

Percentage change in real US GDP, quarterly, seasonally adjusted annual rate

* Note: 2020:Q2 is a Bloomberg forecast as of May 19, 2020. 

*

May 27, 2020
Spread of Coronavirus and Effect on Markets

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Jan-22 Jan-31 Feb-11 Feb-21 Mar-3 Mar-12 Mar-23 Apr-2 Apr-13 Apr-22 May-1

Worldwide coronavirus cases (left scale)

S&P 500 (right scale)

Fund Flows During COVID-19 8

Thousands of coronavirus cases (left axis); level of S&P 500 (right axis)

May 27, 2020
Volatility Surpassed Levels Seen in 2008 

0

10

20

30

40

50

60

70

80

90

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Fund Flows During COVID-19 9

Level of VIX, daily

Source: Cboe Exchange, Inc.

May 27, 2020
Yields on Long-Term Corporate Debt Jumped

0

2

4

6

8

10

12

1/2 1/9 1/16 1/23 1/30 2/6 2/13 2/20 2/27 3/5 3/12 3/19 3/26 4/2 4/9 4/16 4/23 4/30

High-Yield

BBB

Fund Flows During COVID-19 10

Yields on high-yield and BBB-rated bonds, percentage, daily

Source: Federal Reserve FRED

May 27, 2020
0

0.5

1

1.5

2

2.5

3

3/23/43/6

3/103/123/163/183/203/243/263/30

4/14/34/74/9

4/144/164/204/224/244/284/30

Yield on 30-day AA ABCP

0

1

2

3

4

5

6

3/23/43/6

3/103/123/163/183/203/243/263/30

4/14/34/74/9

4/144/164/204/224/244/284/30

SIFMA 7-day Muni Yield Index

Fund Flows During COVID-19 11

Source: Federal Reserve Board; SIFMA

And Short-Term Credit Markets Were Stressed

Yields on 3-month commercial paper and SIFMA municipal swap index, percentage, daily

May 27, 2020
Federal Government Acted to Protect Economy

»Federal Reserve

» Cut rates, purchased gov’t securities, boosted swap lines

» Lending facilities: MMLF, CPFF, PDCF, PMCCF, SMCCF, TALF, PPPLF, 

MLF, Main Street Lending

»Congress

» CARES Act – provided capital for Treasury to backstop Fed facilities

»SEC

» Supported open and orderly equity markets

» Provided exemptive relief for funds

May 27, 2020 Fund Flows During COVID-19 12
Fund Flows Reflected Market Conditions

May 27, 2020 Fund Flows During COVID-19 13
6

-7

3

-13 -4

8 8 1

49

94

159

286

175

78

50

128

82

34 20

-2

8 15 22 29 5 12 19 26 4 11 18 25 1 8 15 22 29 6 13 15*

Prime retail

Prime institutional

Tax-exempt

Government

Investors Sought Liquidity in Government MMFs

Fund Flows During COVID-19 14

Change in money market fund assets, billions of dollars, weekly

*Government includes “Treasury” and “Government” funds from Crane Data.

Sources: Investment Company Institute and Crane Data

January February March April May

May 27, 2020
348

151

-386

-37

83 35

-75

169

Jul Aug Sep Oct

2008

836

342

-139

46

-18

33

691

397

Jan Feb Mar Apr

2020

Tax-exempt

Prime

Government

Fund Flows During COVID-19 15

Source: Investment Company Institute

Money Market Funds: 2020 vs 2008

Changes in assets, billions of dollars

May 27, 2020
31 53 53 51 49 46 43 40

3/18 3/25 4/1 4/8 4/15 4/22 4/29 5/6 5/13

2020

MMLF

CPFF

145

243 257

73

152 139 123 108

96

85 77

9/17 9/24 10/1 10/8 10/15 10/22 10/29 11/5 11/12

2008

AMLF

CPFF

Fund Flows During COVID-19 16

Source: Federal Reserve Board

Use of Federal Reserve Liquidity Facilities: 2020 vs 2008

Asset levels reported on Fed’s balance sheet; billions of dollars, weekly Wednesday

May 27, 2020
20 11 13 12 8 11 11 2

-24

-32

-93 -91

-34

-12 -1

4 2

10 8

3

8 15 22 29 5 12 19 26 4 11 18 25 1 8 15 22 29 6 13* 15*

Municipal

Global

Multisector

Government

High yield

Investment grade

Flows to Bond Mutual Funds

Fund Flows During COVID-19 17

Billions of dollars, weekly

*Data for May 13 and 15 are estimated from Morningstar daily data.

Sources: Investment Company Institute and Morningstar

Memo: percent of previous month assets

0.43% 0.23% 0.28% 0.26% 0.17% 0.22% 0.23% 0.04% -0.49% -0.66% -1.90% -1.85% -0.77% -0.27% -0.03% 0.10% 0.05% 0.23% 0.19% 0.06%

January February March April May

May 27, 2020
-5.2

-2.4

-3.9

-3.0

-4.3

-0.9

-4.5

2.4

-8.1

-4.5

-7.9

-5.5

-4.9

-2.3

Mar 2020 Oct 2008

Total Invest. grade High yield* Govt Multisector Global Municipal

Flows to Bond Mutual Funds: 2020 vs 2008

Fund Flows During COVID-19 18

Percent of assets

*Data exclude high-yield funds designated as floating rate funds. 

Source: Investment Company Institute

May 27, 2020
3.5 3.3 3.1 3.2 3.0 3.3 2.6 3.0

-0.5

-3.1

-20.4 -20.1

-1.4

-2.9

1.3 0.6

-1.8

0.4 0.5 0.3

8 15 22 29 5 12 19 26 4 11 18 25 1 8 15 22 29 6 13 15

Coronavirus and Municipal Sector

Fund Flows During COVID-19 19

Net flows to municipal bond funds, billions of dollars, weekly, Jan 8, 2020–Apr 27, 2020

Note: Includes mutual funds and ETFs; municipal bond mutual fund data from May 13 and 15 are estimated from Morningstar daily data, and municipal bond ETF data from 

May 13 and 15 are estimated from Bloomberg daily data.

Sources: Investment Company Institute, Morningstar Direct, and Bloomberg

Memo: percent of previous month assets

0.41% 0.38% 0.36% 0.37% 0.34% 0.37% 0.30% 0.34% -0.06% -0.34% -2.23% -2.20% -0.18% -0.35% 0.16% 0.07% -0.21% 0.05% 0.06% 0.04%

January February March April May

May 27, 2020
32.4

3.4

18.0

5.0

31.2

2.8

32.2

10.4

Investment Grade Corporate Government Municipal High-Yield

Purchases* Sales†

‘Dark Matter’: Funds Aren’t the Only Investors 

in the Universe

Fund Flows During COVID-19 20

Funds’ share of trading volumes in selected types of fixed income securities, March 2020

* Calculated as (gross fund purchases / (1/2 trading volume on relevant market) 

† Calculated as (gross fund sales / (1/2 trading volume on relevant market)

Sources: Investment Company Institute, FINRA TRACE

May 27, 2020
High Yield Bond Mutual Funds

Net flows as a percentage of assets; monthly, January 2006–March 2020

Note: Data exclude high-yield funds designated as floating rate funds. 

Source: Investment Company Institute

-20

-15

-10

-5

0

5

10

15

20

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Bottom 10th

percentile of 

funds

10% of highyield funds saw 

inflows greater 

than this

Financial 

crisis

Eurozone

crisis

Taper 

tantrum

Global 

pandemic

May 27, 2020 Fund Flows During COVID-19 21
Fund Flows and Changes in Assets: Not the Same

Net flows and changes in assets of bank loan funds (percent of previous month’s assets)

Note: Includes assets in mutual funds and ETFs.

Source: Investment Company Institute

-25

-20

-15

-10

-5

0

5

10

15

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Net flows Change in assets

Financial 

crisis

Eurozone

crisis

Global 

pandemic

May 27, 2020 Fund Flows During COVID-19 22
Target Date Funds Can Provide Some 

Counterbalance to Financial Markets

May 27, 2020 Fund Flows During COVID-19 23

Hypothetical example for March 19, 2020

Target 

allocation

Total 

return

Allocation 

outcome

Likely 

action

Domestic equity1 50.0% +1.1% 50.3% Sell

International equity2 20.0% -0.2% 19.9% Buy

Government bond3 15.0% +1.2% 15.1% Sell

Corporate bond4 15.0% -1.7% 14.7% Buy

1. Total return on the Wilshire 5000 Index for March 19, 2020.

2. Total return on the MSCI All Country World ex US Index for March 19, 2020.

3. Total return on the ICE BofA US Treasury & Agency Index for March 19, 2020

4. Total return on the ICE BofA US Corporate Index for March 19, 2020

Source: Investment Company Institute and Bloomberg 
-13

-1

2

-9

13

8

0

-14

-20

16

-11

-41

12 6 5

-9

-20

-22

-4 -6

8 15 22 29 5 12 19 26 4 11 18 25 1 8 15 22 29 6 13* 15*

Flows to Equity Mutual Funds and ETFs

Fund Flows During COVID-19 24

Billions of dollars, weekly

*Equity mutual fund data for May 13 and 15 are estimated from Morningstar daily data, and equity ETF data from May 13 and 15 are estimated from Bloomberg daily data.

Sources: Investment Company Institute, Morningstar, and Bloomberg

Memo: percent of previous month assets

-0.09% -0.01% 0.02% -0.06% 0.09% 0.05% 0.00% -0.09% -0.15% 0.12% -0.08% -0.30% 0.11% 0.06% 0.04% -0.08% -0.17% -0.19% -0.04% -0.05%

January February March April May

May 27, 2020
8.9 14.3

-39.1

5.5

-6.2

-18.3

-24.0

-4.3

2.7

-4.0

-63.1

1.2

Aug Sep Oct Nov

2008

-24.5 -28.2

-7.7

16.6 15.9 10.4

-18.1

-14.2

-8.0

-17.9 -25.9

1.7

Jan Feb Mar Apr*

2020

World Domestic

Fund Flows During COVID-19 25

*Estimated from weekly data through April 22.

Source: Investment Company Institute.

Flows to Equity Funds: 2020 vs 2008

Equity mutual funds and equity ETFs, net cash flow, billions of dollars

May 27, 2020
ETF Trading Volumes Rose

20%

25%

30%

35%

40%

45%

2/3 2/10 2/18 2/25 3/3 3/10 3/17 3/24 3/31 4/7 4/15 4/22 4/29 5/6 5/13

Fund Flows During COVID-19 26

ETF trading volume as percent of stock market trading volume; daily

Sources: Investment Company Institute tabulations of Bloomberg and Cboe Exchange, Inc. data

May 27, 2020
ETFs Provided Price Discovery

-160

-140

-120

-100

-80

-60

-40

-20

0

20

02 03 04 05 06 09 10 11 12 13 16 17 18 19 20 23 24 25 26 27 30 31

Bond ETF

Equity ETF

Fund Flows During COVID-19 27

Median premium (+)/discount (-), basis points

Source: Bloomberg

March

May 27, 2020
Conclusions

»What worked well:

» Equity markets (including equity mutual funds and ETFs) traded freely

» Funds’ BCP worked, supported investors despite remote work

» Government’s response to financial markets was strong, effective

»Areas for fact-gathering:

» Functioning of money and bond markets

» Size and role of all participants in fixed income markets

» Interaction among all market participants and its impact on markets

» Broker/dealer balance sheet capacity 

May 27, 2020 Fund Flows During COVID-19 28
Thank you

May 27, 2020 Fund Flows During COVID-19 29