View from the Observation Deck

Investors directing capital into U.S. mutual funds and exchange-traded funds (ETFs) favored passive investing over active management during the 12-month period ended June 30, 2026.

Active mutual funds and ETFs reported estimated net outflows of $2 billion compared to net inflows of $1,249 billion for passive funds over the trailing 12 months (TTM) ended June 30, 2026.

Net inflows across all categories of passively managed equities (including Allocation and Nontraditional Equity) totaled $783 billion over the period, compared to inflows of $463 billion into passive fixed income funds. On the actively managed side, equity funds saw combined net outflows of $477 billion while fixed income garnered inflows of $416 billion.

Equity mutual funds and ETFs saw significantly lower inflows than their fixed income counterparts over the trailing 12-month period.

Combined, active and passive equities experienced inflows of $306 billion over the trailing 12 months, based on Morningstar data. For comparison, the active and passive Taxable and Municipal Bond categories reported net inflows of $879 billion over the same time frame. The difference in flows between these categories is notable, especially given persistent outperformance in equities compared to their fixed income counterparts. Data from Bloomberg showed that the S&P 500, S&P MidCap 400, and S&P SmallCap 600 Indices produced total returns of 22.3%, 25.9%, and 37.6%, respectively, over the period. For comparison, the Bloomberg Global-Aggregate Bond, Bloomberg U.S. Aggregate, and Bloomberg Municipal Long Bond Indices saw total returns of 0.6%, 3.8%, and 9.7%, respectively.

Foreign and emerging market equities maintained positive performance over the trailing 12 months.

The MSCI Emerging Net Total Return and MSCI Daily Total Return Net World (ex U.S.) Indices posted total returns of 43.5% and 21.0%, respectively, between Q2’25 and Q2’26, according to Bloomberg data.

Takeaway: Passive mutual funds and ETFs saw combined inflows of $1,249 billion compared to net outflows of $2 billion for active funds over the trailing 12 months ended in June 2026. Net inflows into fixed income investments totaled $879 billion compared to net inflows of $306 billion into equity funds over the period. Morningstar notes that investor interest in municipal bonds has been robust, with the category recording record net inflows of nearly $32 billion in the second quarter of 2026. Interest in the taxable bond category has also been strong, with the category adding $72 billion in new assets in June 2026 alone. As noted above, international equity performance remained compelling. That said, net flows into international equity funds have been volatile as investors navigate continued conflict between the U.S. and Iran. Morningstar data showed the international equity category shed nearly $16 billion in May 2026 before adding just $2 billion in June, bringing the second quarter’s total inflow to just $11 billion.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P SmallCap 600 Index is a capitalization-weighted index that tracks U.S. companies with a small market capitalization. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI World (ex U.S.) Index is a free-float weighted index designed to measure the equity market performance of developed markets. The Bloomberg Municipal Long Bond Index cover the USD-denominated long-term tax exempt bond market, including local general obligation, revenue, insured, and prefunded bonds. The Bloomberg U.S. Aggregate Bond Index measures the investment grade, U.S. dollar-denominated, fixed rate taxable bond market. The Bloomberg Global Aggregate Bond Index measures global investment grade debt in local currency markets. 

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