After nearly $26 billion of inflows in January and February combined , U.S. stock funds saw $934 million in March outflows. International-stock funds, by comparison, took in a relatively robust $6 billion, the Morningstar report said. That was driven by nearly $2.7 billion in emerging-market inflows, after the category had experienced anomalous, modest outflows the previous month.
Taxable bonds slightly surpassed February’s haul with $18 billion in inflows, as bank-loan funds led the way with $4.3 billion. Municipal-bond outflows slowed for a third consecutive month, with less than $2.6 billion in outflows. Still, more than $40 billion has vacated municipal-bond funds over the last five months, which represents 7.8% of beginning total assets.
Demand for alternative and commodity funds remained steady with $1.1 and $1.8 billion, respectively, in inflows. Finally, money market funds saw $12.5 billion in net outflows. Unlike past months, outflows were roughly even between taxable and tax-free offerings.
According to the Morningstar report, within U.S. stock funds, large-cap offerings returned to the penalty box, shedding about $3.2 billion across the value, blend, and growth categories. On the other hand, small-cap funds continued to enjoy inflows, although with a modest $800 million. While large-cap funds have rallied with the market, small-cap funds continue to get the better of them.
As a result, small-cap stocks trade at about a 25% premium to large-cap stocks based upon forward P/E ratios. This small-cap preference generally hasn't held with international-stock funds. In March, large-cap funds acquired $3.6 billion in new money versus just $300 million for small-cap offerings. This pattern has held over the last three years as well, with large-cap foreign-stock funds absorbing $23.2 billion versus $3.5 billion for small caps.
That's in sharp contrast with U.S. stock funds, Morningstar said. Large-cap funds have suffered $147.4 million in outflows against about $14.7 billion in small-cap inflows.