Actively-managed mutual funds have been hemorrhaging assets at a record clip over the past few years, but Vanguard's actively-managed offerings seem less affected by this trend. In fact, Vanguard enjoyed an enormous inflow of money in 2016 primarily into its index funds and ETFs but also into its actively-managed investment options. And some suggest the election of Donald Trump may bring the promise of better times for actively-managed mutual funds as an asset class. So was Vanguard's success with active management in 2016 an aberration, or will these funds see growth under the next administration?
Record Inflows at Vanguard
Vanguard, the largest mutual fund manager in the world, saw total inflows of $305 billion during 2016, Vanguard spokesman John Woerth told Bloomberg. The majority of that money went into index funds, but $50 billion found its way into their actively-managed offerings that invest either in bonds or in a combination of stocks and bonds. And $93 billion went into Vanguard's ETF offerings. This amount beats Vanguard's previous record inflows of $276 billion in 2015 and nearly equals the total amount of assets under management of some other fund companies like Eaton Vance.
The record inflows are happening at a time when many other fund companies are seeing substantial outflows from their actively-managed funds into passive instruments such as indexed ETFs, with their lower expenses and greater tax efficiency. Morningstar reported that 30 of the 50 largest fund companies had net outflows over the first 11 months of 2016 of $286 billion, while $428 billion flowed into passively-managed offerings. BlackRock, the world's largest money manager, also saw positive new inflows of capital in 2016. (For more, see: Vanguard Mutual Funds Overview.)
The Trump Effect
Trump's election brings with it many questions that are yet to be answered, including whether he can help to revitalize the sagging actively-managed mutual fund industry. But many in the industry believe that he can. Erik Oja, a research analyst for CFRA Research, told InvestmentNews, “The planets are lining up for old-line money management firms. Investors are expecting fund companies to get some regulatory relief, and, with expectation of a faster-growing economy, they're getting more of their animal spirits back to work.”
Trump's stated policies of repealing the Department of Labor's (DOL) fiduciary rule as well as the Dodd-Frank legislation promise to provide some regulatory relief for active money managers, provided that he is able to accomplish his goals in this area. His intention to grow the economy by lowering the corporate tax rate by 20% should also spur substantial economic growth domestically. And his promise to spend billions of dollars on infrastructure will provide a boost to the bottom lines of many companies in several sectors.
Many investment firms will be able to continue to sell mutual funds that charge sales loads in their retirement plans and accounts if the DOL rule is either repealed or reduced from its current scope, and this will be a boon to active money managers. These factors have led to a substantial spike in the prices of many stocks of active-management companies (although that is partially attributable to the sell-off that many of them experienced before the election). (For more, see: Are Vanguard Mutual Fund Fees Competitive?)
The Bottom Line
We don't know yet how Trump's policies will impact investment companies such as Vanguard and the rest of the actively-managed mutual fund industry. Trump's fiscal and economic policies may well bring some regulatory relief for old-line firms and broker-dealers that rely on commissions as their primary source of revenue. If he is able to achieve the economic growth that he promises, it could provide another shot in the arm to money managers. (For more, see: Buying Vanguard Mutual Funds Vs. ETFs.)