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Where Investors Put Their Money in 2019

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Fund Flows 2019

This infographic is available as a poster.

Where Investors Put Their Money in 2019

While a strong 2019 closed off an entire decade free of recessions, celebrations have been short. The COVID-19 pandemic, which has tapped the brakes on the global economy, has led the International Monetary Fund (IMF) to declare a global recession.

So what were investors doing before the outbreak? To figure that out, today’s infographic from New York Life Investments visualizes where investors allocated their money in 2019.

Broad Comparisons

Virtually every asset class ended 2019 in the green, with U.S. equities among the highest gainers. In spite of this, investors appeared to be quite risk-averse. Even as the S&P 500 climbed 29% over the year, money was pulled away from equities and placed in safer assets such as money market securities and precious metals.

Let’s examine the data in more detail. In the tables below, net flows represents the difference between total inflows and total outflows.

Mutual Funds VS ETFs

Investors continued to invest in ETFs, but the interesting news is surrounding mutual fund activity. In a dramatic reversal from last year’s net outflows of $91B, mutual funds attracted $574B throughout 2019.

Type of Vehicle2018 Net Flows2018 Total Assets2019 Net Flows2019 Total Assets*
ETFs+$238B$3,385B+$281B$4,408B
Mutual Funds-$91B$16,345B+$574B$19,727B

*2019 total assets also include asset appreciation as a result of market movements.

ETFs once again grew their share of total invested assets, from 17.2% in 2018, to 18.3% in 2019.

Flows by Asset Class Group

To get more specific, investment vehicles are classified based on the type of assets they hold.

For example, a fund that holds a variety of American company stocks would be broadly classified as “U.S. Equity,” while a fund that targets specific industries would be classified as “Sector Equity.” Here are the flows each asset class experienced throughout 2019, starting with the largest net inflows:

Asset Class Group2019 Net Flows 2019 Total Assets 
Money Market+$522B$3,483B
Taxable Bonds+$413B$4,433B
Municipal Bonds+$106B$952B
International Equity+$11B$3,416B
Commodities+$8B$110B
Alternatives-$7B$212B
Sector Equity-$33B$995B
Asset Allocation-$38B$1,343B
U.S. Equity-$72B$9,162B

Investors pulled money from asset allocation funds, as well as alternatives, sector equity, and U.S. equity vehicles. Trade tensions between the U.S. and China, which have had a material impact on both countries’ economies, may have been a reason for this conservatism. Other likely factors include the Hong Kong protests and the culmination of Brexit.

In the face of these worrying developments, fixed income vehicles were in high demand, even as the Fed cut rates on three separate occasions. Money market funds had a massive year, and were responsible for much of the investor capital diverted to mutual funds in 2019.

In fact, with a Q3 net inflow of $224B, money market funds saw their strongest quarterly inflows since the global financial crisis.

Deeper Dive: Commodities

One of the most compelling flow trends of 2019 lies in commodities, which we can break down into five subcategories:

Commodities Subcategory2019 Net Flows 
Precious Metals+$11.4B
Industrial Metals-$0.1B
Energy-$0.2B
Broad Basket-$0.8B
Agriculture-$2.2B

Precious metals, which include safe-haven assets like gold and silver, were the only subcategory to see positive net flows in 2019. Likely driven by the fear of inflation, investors flocked to precious metals from June to October.

Gold and silver are often referred to as “safe-haven” assets because they outperform during periods of uncertainty.

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It’s interesting to note that investors pulled money out of precious metals in November and December—perhaps a sign of growing confidence in the economy.

2020 and Beyond

Due to the ongoing COVID-19 pandemic, volatility has returned to global markets.

While the conservative asset allocation decisions made in 2019 may have given investors some shelter from this turmoil, it’s likely they paid a penalty for missing out on a robust year for equity markets.

In uncertain times like these, it’s important for every long-term investor to keep a cool head. After all, history has shown us that markets will eventually recover.

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Visualized: The Economic Benefits of a Green Recovery

A green recovery is projected to boost global GDP by 1.1% annually, along with saving 9 million jobs. What opportunities does this present for investors?

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Visualized: The Economic Benefits of a Green Recovery

After years of technological advancement, many renewable energy sources are now more efficient than traditional sources of energy.

Thanks to their falling prices and scalability, a green recovery, which centers on worldwide funding and policy support for green energy alternatives, is gaining strong momentum.

This infographic from New York Life Investments unpacks how a green recovery will benefit both the economy and investor portfolios.

What is a Green Recovery?

A green recovery is the intention of allocating the unprecedented global wave of public spending, pent up over the course of the 2020 pandemic, exclusively towards investment in sustainable systems to support:

  • The creation of millions of jobs
  • Improved productivity
  • A structural decline in greenhouse gas emissions (GHG)

Green Recovery: The Economic Benefits

It is projected that nine million jobs per year will be created or saved over the next three years in a green recovery, along with 1.1% added in global economic growth annually.

Let’s look at two reasons why a sustainable recovery is gaining traction:

  1. Lower costs in energy spending
  2. More jobs created

To start, a sustainable recovery would involve 2% of U.S. GDP invested in low carbon energy. Compare this to current U.S. energy spending, which stands at roughly 6% of GDP—sitting at near lows. In fact, in the past, energy spending in the U.S. has reached as high as 13% of GDP.

Secondly, for every $1 million investment in renewable energy, more than twice as many jobs are created per category than in traditional energy. For instance, 7.5 jobs are created in the wind energy industry versus 2.2 in oil & gas.

Per $1 Million InvestmentTypeJobs Created
Renewable EnergyEnergy Efficiency7.7
Wind7.5
Solar7.2
Traditional EnergyCoal3.1
Oil & Gas2.2

Source: World Resources Institute, 07/28/20

With this in mind, let’s take a look at how investors can take advantage of a sustainable recovery across three industries.

1. Renewable Energy

Historically, energy demand has sharply rebounded after major economic shocks.

Following the Spanish Flu, energy demand plummeted over 15%—but rebounded by almost 25% the year after. Similarly, in the years that followed the Great Depression, World War II and the Global Financial Crisis, energy demand spiked.

In 2020, energy demand growth hit a 70-year low, created by the largest absolute decline ever. If history repeats itself, energy may be poised for a substantial demand increase.

On top of this, renewables have become significantly cheaper and scalable in recent years. Solar energy is a prime example. It is now one of the most affordable sources of electricity. In fact, the price of energy from new power plants—vital sources that generate energy for society—has changed significantly over the last decade.

Energy TypePrice per MWh (2009)Price per MWh (2019)Price % Change
Coal$111$109-2%
Solar Photovoltaic$359$40-89%
Onshore Wind$135$41-70%
Gas (combined cycle)$83$56-32%

Source: Lazard Levelized Cost of Energy Analysis via Our World in Data, 01/12/20

In 2019, over 50% of new global power capacity came from solar photovoltaic and wind power.

2. Transportation

Globally, as electric vehicle (EV) sales have accelerated, so have public chargers, illustrating a new infrastructure opportunity for investors. In 2019, there were 1 million public chargers built worldwide. Since 2014, public chargers in Europe specifically have more than doubled to over 200,000.

Year# of Global Electric Vehicles
2012110,000
2013220,000
2014400,000
2015720,000
20161.2M
20171.9M
20183.3M
20194.8M

At the same time, economies are planning for a wave of green transport investments.

Italy, for instance, plans to invest $33 billion in sustainable mobility as part of its $231 billion green recovery plan. Meanwhile, Germany is investing $6 billion in the electrification and modernization of its rail and bus system. Interestingly, high-speed rail uses 12 times less energy per passenger than airplanes or road transport trips under 500 miles.

Like renewable energy, electric vehicles, high-speed rail, and modern transport infrastructure are all central to the new chapter in sustainable investment.

3. Low-carbon Technology

Finally, you can’t talk about a sustainable recovery without net-zero emissions, where all emissions created are also removed from the atmosphere.

In recent months, net-zero targets have increased substantially. In January 2020, 34% of all global emissions were covered by net-zero targets. By March 2021, this reached 50%. Decarbonization will play a critical role in reaching net-zero targets.

Crucially, net-zero emissions can be achieved through the following decarbonization options:

  • Carbon capture: Chemical absorption and the injection of CO2 into depleted reserves
  • Nuclear energy: Produces energy through nuclear reactions
  • Storage & utilization: Improved electricity grid storage
  • Renewable innovation, and others: Includes hydrogen, batteries, and scaling renewables

Even in the wake of the pandemic, global investment in decarbonization topped half a trillion dollars in 2020, 9% higher than in 2019.

New Turning Point

COVID-19 is radically reshaping the sustainable investment landscape.

In 2020, nearly 25% of all U.S. stock and bond mutual fund net inflows went into sustainable funds. By 2025, as many as half of all investments are projected to be ESG-mandated in the United States. From modern infrastructure to low-carbon tech, sustainable investments present many opportunities for investors.

Supported by lower costs and government policies, sustainable investments show potential for promising growth.

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Beyond Bonds and Bridges: How to Approach Infrastructure Investments

Global infrastructure needs amount to $94 trillion by 2040. Here’s how to take advantage of infrastructure investments in your own portfolio.

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How to Approach Infrastructure Investments

Infrastructure is essential for our transportation, utilities, and communication needs. In fact, the U.S. government has recently emphasized its key role with supportive spending plans—and infrastructure is entering an investment supercycle.

In this graphic from New York Life Investments, we highlight the growing opportunity in infrastructure investments, and how investors can take advantage through both municipal bonds and publicly-traded infrastructure companies.

Investing in Infrastructure

As infrastructure continues to evolve, there are 3 main themes driving growth.

  • Data growth: Wide-scale tech adoption is increasing our need for digital infrastructure
  • Aging assets: Existing infrastructure is in need of upgrading or total replacement
  • Decarbonization: Climate change is driving demand for more sustainable energy

This presents a large opportunity for investors. Between 2016 and 2040, global infrastructure needs will amount to $94T, or about $3.7T per year.

Investors can access this market through municipal bonds, which are debt securities issued by state and local governments. They can also allocate funds to listed infrastructure companies, which are publicly-traded equities that own or operate infrastructure assets.

Here’s what investors need to know about both types of infrastructure investments.

Municipal Bonds

Traditionally, U.S. infrastructure is defined as big public work projects such as bridges, roads, and schools. About three-quarters of the costs are paid for by state and local governments, with a large portion coming from municipal bonds.

Both taxable and non-taxable bonds offer many benefits:

  • High Credit Quality: While corporate bonds are spread relatively evenly between investment grade and non-investment grade, the vast majority of municipal bonds are investment grade. These ratings have held up well, even during recessions.
  • Low Equity Correlation: Correlation measures how closely the price movements of two investments are related. While other bond categories have moved more in-line with the stock market, taxable municipals have had the lowest correlation. Investors who add taxable municipals to a portfolio may increase diversification.
  • Higher Relative Yields: Taxable municipal returns have been strong relative to other high quality sectors, and comparable to that of corporates.
    Bond categoryYield to worst
    Taxable Municipals2.10%
    Investment Grade Corporates1.70%
    U.S. Aggregate1.10%
    U.S. Treasuries0.60%

    Note: Data as of December 2020. Yield to worst is the lowest potential yield that can be received on a bond without the issuer actually defaulting.

    Amid low or even negative interest rates, this is especially important.

Infrastructure Companies

After municipal bonds are issued, governments use these funds to hire both public and private companies to build, maintain, and upgrade infrastructure. These companies have distinct advantages, such as high barriers to entry and consistent demand.

Of these companies, 360 are publicly-traded with a total value of $4.1 trillion. What benefits do public (listed) infrastructure companies offer?

  • Attractive historical returns: Listed infrastructure companies had higher returns than global equities over the 20-year period from 2000-2020.
  • Income potential: Over the last 20 years, income has accounted for about half of public infrastructure’s total return. This is partly due to stable and resilient cash flows.
  • Lower volatility and downside risk: Historically, listed infrastructure has had less risk than traditional equities and other real asset classes.
    Asset classStandard deviation Downside capture ratio vs global equities
    Listed Infrastructure12.9544.8%
    Global Equities15.14100.0%
    Global REITs17.3580.9%
    Energy Master Limited Partnerships38.25209.4%

    Note: Standard deviation and downside capture ratios are in USD over a 5 year period from Jan 2016-Dec 2020 using quarter-end data.

    For example, listed infrastructure only declined 45% as much as global equities during market downturns from 2016-2020.

An allocation to global, publicly-traded infrastructure companies may help reduce portfolio swings and manage risk.

Infrastructure Investments in a Portfolio

While municipal bonds play a key role in funding infrastructure, it’s companies that build our data centers and maintain our bridges.

Investors can benefit from allocating money to both infrastructure investments.

InvestmentWhere does it fit?Benefits
Municipal bondsCore fixed income allocation- High credit quality
- Low equity correlation
- Higher yields relative to other high quality sectors
Infrastructure companiesGlobal equity or real assets allocation- Income potential
- Attractive historical returns
- Lower volatility relative to equities & other real assets

Ultimately, municipal bonds and infrastructure companies can help investors build a stronger portfolio.

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