FUND FLOWS SPOTLIGHT Surge of Interest in Sector Funds Sector equity funds picked up $5.5 billion in August after shedding a modest $750 million in July. Their $117 billion intake over the trailing 12 months equates to an organic growth rate of 11.5%- much higher than U.S. equity funds' 0.4% and even international equity funds' 5.8%. Enthusiasm for technology funds helped bolster inflows toward the end of 2020 and into early 2021, but valueoriented funds assumed leadership through June. Morningstar Category: Financial Technology $8B 4 -4 -8 09/2020 10/2020 11/2020 Source: Morningstar Direct. Data as of 08/31/2021. 12/2020 01/2021 02/2021 03/2021 04/2021 05/2021 06/2021 07/2021 08/2021 The pendulum swung back the other way in July as investors pivoted away from traditional value-leaning categories such as financial, natural resources, and energy funds toward growthier technology and healthcare funds. August amounted to a blend between the two dynamics. Financial funds pulled in the highest total in the category group, with $2.9 billion, but technology funds collected the fourth-most dollars, with $1.1 billion. Value-leaning real estate and utilities funds each grabbed about $1.1 billion, but energy equity funds suffered $1.6 billion in outflows. Adam Sabban, CFA, is an analyst at Morningstar Research Services LLC. Ryan Jackson is an associate analyst at Morningstar Research Services LLC. Active Versus Passive Fund Strategies The percentage of U.S. actively managed funds that outperformed their respective Morningstar Style Index. < 20% Percentage of Actively Managed Funds Outperforming Index: 1-Year 75.0% 29.4 79.5% 26.1 37.8% 27.7 3-Year 70.7% 8.4 35.8% 15.2 18.0% 23.1 20 to 40% > 40% Index Returns (09/30/2021) 5-Year 64.4% 10.5 35.5% 16.0 13.9% 24.0 56.4% 44.7 62.2% 36.2 51.0% 31.0 78.0% 7.7 11.0% 14.2 23.9% 21.8 76.3% 9.6 25.6% 13.7 22.4% 21.6 30.4% Value 67.3 82.3% Core 42.7 87.9% 27.7 67.0% Growth Value 7.1 61.0% Core 8.6 73.0% 12.8 69.5% Growth Value 8.8 77.8% Core morningstar.com/lp/magazine 10.5 65.5% 16.7 Growth 95 Small Mid Large Small Mid Large Small Mid Largehttps://www.morningstar.com/authors/2338/adam-sabban https://www.morningstar.com/authors/2338/adam-sabban https://www.morningstar.com/authors/2385/ryan-jackson https://www.morningstar.com/authors/2385/ryan-jackson http://www.morningstar.com/lp/magazine