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Where Investors Put Their Money in 2018

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Where Investors Put Their Money in 2018

This infographic is available as a poster.

Where Investors Put Their Money in 2018

For most investors, 2018 was both an eventful and frustrating year.

Between the looming threat of trade wars and growing geopolitical uncertainty, the market also skipped a beat. Volatility took center stage, and the S&P 500 finished in negative territory for the first time in 10 years.

Although many asset classes finished in negative territory, a look at fund flows – essentially where investors put their money – helps paint a more intricate picture of the year for investors.

Visualizing 2018 Fund Flows

Today’s infographic comes to us from New York Life Investments, and it visualizes the flows in and out of U.S. funds for 2018.

It not only shows when investors poured money into mutual funds or ETFs, but it also breaks down these funds by various categorizations. For example, when did people buy funds that held U.S. equities, and when did they buy funds that primarily held money market securities?

Let’s dive into the data, to take a deeper look.

Mutual Funds vs. ETFs

For another year in a row, ETFs gained ground on mutual funds:

Type of Fund2018 Fund FlowsTotal Assets (End of Year)
ETFs+$238.4 billion$3.4 trillion (17.2%)
Mutual Funds-$91.3 billion$16.3 trillion (82.8%)

However, despite growing for another year, ETFs still make up a smaller part of the overall fund universe.

Flows by Asset Class Group

Every fund gets classified by Morningstar based on the types of assets it holds.

For example, a fund that focuses on holding fast-growing, large tech companies in the U.S. would be classified broadly as “U.S. Equity”, and more specifically as “U.S. Equity – Large Growth”.

Here’s how flows went, within these broader groups:

Fund Category GroupTotal Assets ($mm)Growth in 2018
Allocation$ 1,171,166-5.9%
Alternative$ 203,343-5.7%
Commodities$ 88,9392.4%
International Equity$ 2,787,4003.1%
Money Market$ 2,879,5106.2%
Municipal Bonds$ 795,1320.9%
Sector Equity$ 816,149-3.7%
Taxable Bonds$ 3,747,2683.5%
U.S. Equity$ 7,173,9020.0%

Investors pulled money from Allocation, Alternative, and Sector Equity funds, while rotating into Money Market and Taxable Bonds categories. These latter assets are considered safer, and this shift is not surprising considering the market volatility towards the end of the year.

Also interesting here is that U.S. Equity – the biggest category overall by total assets – saw equal amounts of inflows and outflows, ending with a 0.0% change on the year.

U.S. Equity: A Closer Look

U.S. Equity ended the year with zero change, but it’s also the biggest and broadest category.

Let’s break it down further – first, we’ll look at what happened to flows by market capitalization (small, mid, and large cap stocks):

Market CapitalizationAssetsGrowth (2018)
Large Caps$5.6 trillion0.2%
Mid Caps$884 billion-2.5%
Small Caps$672 billion1.7%

Investment in funds that held large cap stocks increased by 0.2%, while the money allocated to small caps rose by 1.7% over 2018. Interestingly, investors pulled money out of mid caps (-2.5%).

Now, let’s look at U.S. Equity by type of strategy:

Fund StrategyAssetsGrowth (2018)
Growth$2.0 trillion-2.1%
Value$1.4 trillion-2.8%
Blend$3.8 trillion2.2%

According to these flows, investors pulled money from funds focused solely on value or growth, while instead preferring funds that were a blend of the two strategies.

International Equities

Finally, let’s see the types of international funds that investors bought and sold over 2018.

RegionGrowth (2018)
China35.5%
Diversified Emerging Markets4.9%
Latin America4.3%
Foreign/World3.9%
Diversified Asia/Pacific-5.6%
Pacific/Asia ex-Japan-7.1%
Japan-9.0%
India-11.3%
Europe-23.4%

Investors eschewed funds that had a primary focus on European, Indian, and Japanese markets, while piling into funds that held Chinese equities. Meanwhile, Latin America and emerging markets also got some love from investors.

Conclusion

While 2018 was an eventful year for markets, this recap shows that investors are adjusting their portfolios accordingly.

Where will investors put their money in 2019?

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Infographics

Five Trends for Investors to Watch Amid a COVID-19 Recovery

As economies face structural shifts, this infographic covers five trends that have the potential to alter financial markets amid a COVID-19 recovery.

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5 Trends for Investors to Watch Amid a COVID-19 Recovery

If history tells us anything, crisis forges change.

Like other pandemics throughout history, COVID-19 led to tectonic shifts in society, markets, and government policy. People and businesses are rethinking traditional work structures, while inflation concerns are rising amid trillions in stimulus injections. But what impact does this have on investors?

To answer this question, this infographic from New York Life Investments pinpoints five trends to watch amid a COVID-19 recovery.

1. Inflation

Today, investors are closely watching inflation. Core factors that influence inflation include:

  • Increasing money supply
  • Rising raw materials costs

Between 2020 and 2021, the money supply in the U.S. rose over 28%. Meanwhile, building materials and supplies, as shown through the producer price index, have jumped 44% between May 2020 and May 2021.

In fact, as of May 2021, inflation has seen its greatest rise in over a decade, with year-over-year figures increasing 5%.

The Opportunity

To hedge against potential inflation risk, investors can consider the following asset classes:

  • Infrastructure
  • Bank loans
  • Gold
  • Commodities
  • Real estate
  • Treasury inflation-protected securities (TIPS)

2. Innovation

How companies navigate digital disruption will likely affect their revenues and future operations. Notably, during COVID-19, companies that adopted new technologies saw higher revenues than their peers, according to one survey.

Companies that reported over 25% revenue growth  
First to experiment with new technologies during the crisis72%
Not the first to experiment with new technologies during the crisis33%
Invested more in digital-related expenditures67%
Did not invest more in digital-related expenditures31%

*Responses from 899 C-level executives and senior managers representing the full range of regions, industries, company sizes, and functional specialties. Compared to industry peers, time period is over three years.
Source: McKinsey, 10/05/20

The Opportunity

Frontier technologies have the potential to reshape markets and productivity both during and after a COVID-19 recovery. Here are among a few examples:

  • Artificial intelligence (AI)
  • Big data
  • Internet of things (IoT)
  • Robotics
  • Solar photovoltaic (PV)

3. ESG

Environmental, social, and governance (ESG) investing continues to break records, attracting nearly $2 trillion in assets as of Q1 2021.

 Global ESG assetsGlobal ESG fund flowsGlobal ESG funds
Q1 2020$841.5B$45.7B3,297
Q1 2021$1.9T$185.3B4,524

Sources: Morningstar 04/30/21, Reuters 01/28/21

The Opportunity

Within the sustainable investment landscape, three particular segments may be poised for potential growth: green bonds, solar PV, and transition finance.

Green Bonds: In the last year, green bond issuance has quadrupled to $131 billion globally.

YearGlobal sustainable bond growthNumber of issues
Q1 2015$6B22
Q1 2016$14B30
Q1 2017$26B58
Q1 2018$28B84
Q1 2019$39B123
Q1 2020$35B123
Q1 2021$131B314

Source: Refinitiv 04/23/21

Solar photovoltaic (PV) installations: Global solar PV installations are set to rise roughly 28% over two years.

YearPV installations (conservative)PV installations (optimistic)
2020e129145
2021p151194
2022p165205

Source: Bloomberg NEF 03/01/21

Transitional finance: These are financing tools designed for big carbon polluters to adopt greener alternatives. In the future, these types of vehicles could accelerate. For instance, bonds whose interest rates would likely increase if sustainability targets aren’t met.

4. Future of Work

Since COVID-19, job markets have faced a historic change. One study shows that 22% of the U.S. workforce are projected to be working remotely by 2025, equal to roughly 36 million Americans.

 Percentage of respondents
Employees who would prefer to work from home42%
Percent of the workforce projected to work from home by 202522%
Would maintain traditional working-at-the-office schedules10%

Sources: Center for the Digital Future 08/26/20, Upwork 12/15/20

The Opportunity

As traditional work models shift, key industries could be impacted, for instance:

Video conferencing: Global market size is projected to jump from $9.2 billion in 2021 to $22.5 billion in 2025.

Office space: Future office space preferences are changing. According to one study, here is how CEOs view their office space needs going forward.

  • 76% less office space is needed
  • 18% no change
  • 6% more office space needed

Interestingly, it is estimated that one-third of power, utilities, and renewables companies are looking to add more office space going forward.

5. Healthcare

Health costs related to the pandemic are set to reach a staggering $2.6 trillion.

At the same time, digital healthcare investment hit record levels last year:

    • 2020: $21.6 billion
    • 2019: $13.9 billion

The Opportunity

Especially as behavior shifts to digital platforms, the demand for healthcare innovation is likely to expand. Here are three segments of health expenditures, and their potential to be virtualized:

      • Urgent care visits: 34%
      • Office visits: 24%
      • Home health visits: 20%

One estimate suggests that 20% of all healthcare spending in the U.S. could be conducted virtually, worth $250 billion.

COVID-19 Recovery: The Next Stage

New and powerful trends—from AI to ESG investing—have the potential to structurally change systems and industries.

At the same time, many of these trends aim to solve complex problems. How investors adapt could have lasting effects on their portfolios. Thanks to these underlying shifts, new opportunities for investors are underway amid a COVID-19 recovery.

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Infographics

A Visual Guide to Planning for Retirement

Did you know the average American will outlive their savings by nearly 10 years? In this infographic, we cover the basics of retirement planning.

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How Retirement Planning Today, Can Ensure Freedom and Stability Tomorrow

When it comes to retirement planning, millions of Americans across different generations are finding it difficult to feel secure.

This is evidenced by the fact that only 54% of Baby Boomers have a retirement strategy in place. For younger generations such as Millennials, this falls to as low as 31%.

Thankfully, it’s never too late to start thinking about retirement. In this infographic from New York Life Investments, we’ve put together a straightforward overview that covers the various aspects of the retirement planning process.

How Much Should You Save?

Although this is one of the most frequently asked questions, it doesn’t come with an easy answer. That’s because retirement planning isn’t just about dollars saved, it’s also about income.

The following table lists a number of factors that could affect the level of retirement income you might need:

FactorDescription
LifestyleYour desired lifestyle will have a large impact on your required level of income.
Hobbies, vacations, and other pursuits can be a significant expense.
Housing needsRetirees often find themselves needing less space.
Selling your home and downsizing is a common method for increasing cash flows.
Medical needsMedical expenses can arise unexpectedly and be a large drain on savings.
The average American aged 65+ spends roughly $11,000 a year on medical needs.*
InflationInflation can erode the purchasing power of your retirement income, and highlights
the importance of picking the right investments to counter this effect.

*Source: U.S. Department of Health

After estimating your retirement income, the next step is figuring out how to achieve it. Here’s how a savings plan might look, based on two assumptions: (i) your retirement income is equal to 70% of your current annual income, and (ii) you are able to generate an annual return of 7%.

Annual salaryAnnual retirement incomeRequired savingsMonthly contributions
(20 years until retirement)
Monthly contributions
(25 years until retirement)
Monthly contributions
(30 years until retirement)
$50,000$35,000$777,778$1,480$955$635
$75,000$52,500$1,166,667$2,230$1,435$955
$100,000$77,000$1,711,111$3,270$2,100$1,395

The key takeaway from this table is that the earlier you start saving for retirement, the lower your monthly burden will be.

It’s also important to remember that the 70% retirement income goal was simply used as a benchmark—your own retirement strategy will ultimately be guided by your unique needs.

The Importance of Financial Assets

In the previous example, our second assumption was that you were able to earn an annual return of 7%. Achieving this typically requires the use of financial assets like stocks and bonds, which have the potential to grow your wealth much faster than a typical savings account.

For example, as at March 15, 2021, the national average interest rate offered by a savings account was 0.04%. Compare this to the S&P 500, which has generated an average annualized return of 13.9% between 2011 and 2020. The S&P 500 is a stock market index that consists of the 500 largest publicly-traded U.S. corporations.

Issues become apparent when we take a closer look at who actually owns stocks.

U.S. Families by WealthPercentage of Families with Equity Exposure
Top 10%90%
Middle 50-90%70%
Bottom 50%31%

Source: Federal Reserve

With only 31% of families in the bottom 50% having exposure to stocks, many Americans are missing out on a powerful tool for growing their wealth. This highlights the importance of investor education, particularly when thinking about retirement.

Retirement Planning Accounts

Retirement accounts are another important tool that many Americans are not using to their advantage. For example, just 50.5% of Americans own a retirement account, while 98.2% own transaction accounts (checking or savings).

Here’s a simple overview of two retirement accounts that most Americans have access to.

Traditional IRA

A traditional IRA (Individual Retirement Account) provides tax benefits to help you prepare for retirement. It can be opened online or in-person through various banks, brokerage firms, wealth managers, or trading platforms.

Contributions to this account may reduce your taxable income for that given year, but these assets will be locked until retirement. Once retired, any untaxed income would be taxed upon withdrawal, ideally when you are in a lower marginal tax bracket.

Traditional 401(k)

A traditional 401(k) is typically offered through your employer and offers similar tax benefits as an IRA. Contributions into a traditional 401(k) reduce your taxable income, but in this case, they are automatically taken from your payroll.

An added benefit of the 401(k) is that your employer will usually match some or all of the contributions you make.

Roth IRA and Roth 401(k)

The Roth variants of these accounts follow a similar concept as their “traditional” counterparts, but flipped around. This means that contributions are taxed, while withdrawals are tax-free.

Ultimately, the decision to use either a Roth or traditional account will depend on your financial position, and can be a great topic to discuss with a professional advisor.

Feeling Secure

While everyone has different goals for retirement, the need for financial security is shared by all.

It’s been estimated, however, that the average American has a retirement savings shortfall of nearly 10 years. Also known as longevity risk, this dilemma refers to the scenario where retirement savings and income are unable to support you for the rest of your life.

With this in mind, it’s never too late to take control of your future and put a plan into place.

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