Dollar flows into mutual funds are used as an indicator, and have been demonstrated to track market fluctuations. Mutual funds are a popular investment vehicle, especially among retail investors, so inflows and outflows from funds typically correspond to increases and decreases in demand for equities. The Standard & Poor's 500 Index returned 13.5% in 2014 and 1.36% in 2015, while the Russell 3000 Index's total returns were 12.56 and 0.48% in those two years, respectively. Total returns led price returns in both years, with negative price returns for the Russell 3000 in 2015. The asset flow data suggests that investors grew generally more optimistic about U.S. economic growth in 2015, though factors such as anticipated interest rate hikes may have caused some concern over valuation stability.

Total Flows to U.S. Equity Funds

According to the Investment Company Institute's (ISI) Estimated Long-Term Fund Flows Data Summary reported in April 2016, domestic equity mutual funds experienced $60 billion in net outflows during 2015, followed by $171 billion in outflows in 2015. ISI's statistics exclude funds of funds and exchange traded funds (ETF). Morningstar reported net inflows of $68.3 billion to U.S. equity funds in 2014, a 1.5% organic growth rate. In 2015, it reported total outflows of $66 million from U.S. equity funds, a -1.1% organic growth rate. Morningstar excludes fund-of-fund data, but includes ETFs in their statistics.

The data from ISI and Morningstar suggests that demand for U.S. equities was stronger in 2014 than in 2015. Morningstar's data more closely matches the performance of popular market indexes, which indicates that there is some substitution of mutual fund shares for ETF holdings providing exposure to this equity category. Alternatively, changing holder profiles could be driving the difference between mutual fund and ETF flows, with U.S. equities becoming relatively more popular with investors who would hold ETFs rather than mutual fund shares.


Morningstar provides detailed flows data on fund categories. In 2014, active U.S. equity funds experienced outflows of $98.4 billion, followed by outflows of $169 billion in 2015, bringing total assets to $3.55 trillion. Passive fund inflows were $166.6 billion in 2014, followed by $103 billion in inflows in 2015, bringing total assets to $2.43 billion. Comparing the statistics chronologically shows a clear trend toward passive management and away from active strategies, and the 2014 to 2015 trend reflects a decline in demand in 2015, relative to 2014. This data supports the discrepancy between ISI and Morningstar's reports.

In 2014, large-cap value funds experienced net inflows, with value and blend funds experiencing inflows and growth funds seeing outflows. Blend funds also grew for mid-caps, while both growth and value mid-cap funds experienced outflows, a trend shared by small-cap funds. Overall, large-cap funds had significant inflows, mid-caps had relatively modest outflows and small-caps saw significant outflows. The preference for blend funds over value and growth funds indicates uncertainty regarding the direction of the U.S. equity market, while avoidance of mid-cap and small-cap funds signals declining risk tolerance.

In 2015, all three classes of large-cap funds experienced outflows, with value funds sustaining the greatest reduction. Mid-cap and small-cap blend funds both experienced inflows, though the small-cap funds' gains were small. Value and growth categories for both capitalization groups exhibited outflows. A shift toward smaller-cap strategies suggests that investors grew more optimistic about U.S. growth, but the net flows for blend funds were higher than those of growth funds for each size category, limiting the bullishness that can be inferred from the data.


Morningstar also publishes asset flow data for sector-specific funds. Healthcare funds experienced inflows over both years, with a total of over $30 billion. Technology, financial, equity energy and consumer cyclical funds also had inflows for both years, though the magnitude of flows was much lower in each case than with health care. Utilities, consumer defensive and industrial sector funds all exhibited inflows in 2014, followed by outflows in 2015. Natural resource equity funds had outflows in 2014 and 2015. Sector-specific conditions helped drive the flows to the health care and natural resource categories, but the trends across other sectors indicate a modestly bullish attitude.