Global Investing in a Nutshell

By Brian Dolan, Head Market Strategist Morningstar, an independent investment research provider, just released its third annual Global Flows Report detailing investing trends from 2014. The study focused on worldwide mutual fund and exchange-traded product (ETP) investment flows.

2014 By the Numbers

Among the many interesting observations, Morningstar reported the following using 2014 end-of-year data:

  • Global investments in open-end mutual funds and ETPs rose $3 trillion from 2013 to nearly $30 trillion in total assets.
  • Net inflows increased by a record $1.3 trillion compared to less than $1 trillion in 2013.
  • Global stock funds accounted for roughly one-third of total investment inflows ($439 billion).
  • Fixed income funds (bonds) attracted just under 30% of fund inflows ($371 billion).
  • Allocation funds, which diversify across asset classes , were the third largest fund-type selection globally, and the dominant choice of European investors.
  • The U.S. remained the largest investment destination, holding 57% of the world’s assets, but European and Asian market share is growing more rapidly than the U.S.
  • Investments in low-cost, passively managed index funds continues to be the dominant trend in the US, particularly among stock investors. (Passive index funds, such as ETFs, typically have lower management expenses than actively managed funds that try to beat the market.)
  • Outside of the US, non-index funds attracted the most capital, but passively managed fund investing is becoming increasingly evident in Europe and Asia.

Regional Trends

Investors in the US heavily favored passive index funds over non-index funds in both stocks and bonds. European and Asian investors leaned most heavily to non-index funds in fixed income investments, while passive index funds attracted the most stock inflows. European investors actually reduced their holdings of non-index equity funds.

Even with the heavy inflows into index funds in recent years, non-index funds still comprise the vast majority of global fund investments. Passive index funds account for only roughly one quarter of US investment assets, about 20% of Asian investments and only 10% of European allocations. The study suggested that the US preference for index investments is due to the massive selection of funds available in the US compared with index offerings elsewhere, though the trend continues to favor the indexing approach.

Read the full report here.

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