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9 Morningstar FundInvestor August 2015
funds and those seeing the most outflows. Interest-
ingly, in most groups the subsequent three-year
performance of funds that survived heavy outflows
was not that bad. This may indicate that heavy
outflows are a better predictor of which funds are
going to get merged away or liquidated than of
subsequent underperformance. Thus, the deaths of
scores of poorer-performing funds make the sub-
sequent performance of their highly redeemed fund
cohorts look better.
The study offers a bit more evidence that extreme
inflows or outflows can affect your fund’s future. Big
outflows jeopardize the viability of funds; impatient
fund families may pull the plug on lagging strategies
that are suffering heavy redemptions rather than
wait for rebounds. Large inflows, while not hurting
funds’ odds of survival, can presage more-mediocre
future performance. While heavy inflows and outflows
are not definitive sell signals, they should be a sign
to pay closer attention.
Here are Morningstar 500 funds whose top- or
bottom-decile one- and three-year outflows or
inflows raise questions.
Worry Warts
Outflow is just one of Columbia Acorn’s ACRNX
worries. The fund has experienced significant
management and analyst staff changes in the past
year or so in addition to experiencing heavier out-
flows than 99% of its mid-growth peers over the
trailing one- and three-year periods. With $11.5
billion in assets and a still-decent 15-year track
record, the fund, which has a Morningstar Analyst
Rating of Neutral, probably isn’t in jeopardy of
merger or liquidation, but the changes and persistent
outflows don’t make its job any easier.
Huge outflows of $3.5 billion over the past three
years also have complicated matters at the sprawling
Royce Pennsylvania Mutual PENNX. This fund,
too, has been in an extended slump, with returns in
the bottom decile of the category over all trailing
periods up to 10 years. It still has $4.5 billion in assets
and veteran management, but sustained outflows
don’t improve the picture here.
Eventide Gilead ETILX has posted stellar perform-
ance since its inception, but it, too, has accumulated
red flags. Performance has been hot and driven
by biotech and technology shares, expenses are very
high, and the fund hasn’t really seen a market that
has turned against its aggressive approach. On top of
that, it has gathered assets faster than about 95%
of other mid-growth funds over the trailing one- and
three-year periods. K
Contact Daniel Culloton at
Data as of Dec. 31, 2014.
Small-Cap Funds
100%
80%
60%
40%
20%
Start Survive
(3-Yr Returns)
Outperform
(Success Ratio)
Mid-Cap Funds
100%
80%
60%
40%
20%
Start Survive
(3-Yr Returns)
Outperform
(Success Ratio)
Extreme Flows
Can Be Unhealthy
The charts show that heavy
outflows hurt certain funds’ odds
of surviving and outperforming,
and big inflows can impede future
performance. Decile 1 includes
funds with the lowest organic
growth rates, or biggest outflows
or smallest inflows; decile 10
includes those with the highest
organic growth rate, or most
inflows. The start of each line in
the first column marks the begin-
ning of the rolling three-year
periods between 2006 and 2014
when all funds examined still
existed. The lines then track the
percentage of those funds that
survived the subsequent three-
year periods (the second column)
and (in the third column) outper-
formed their average peers. The
domestic mid- and small-cap
categories and foreign large-cap
group showed the most dramatic
drop-offs in both decile 1 and
decile 10.
Foreign Large-Cap Funds
100%
80%
60%
40%
20%
Start Survive
(3-Yr Returns)
Outperform
(Success Ratio)
pDecile 1 p Decile 5 p Decile 10
pDecile 1 p Decile 5 p Decile 10
pDecile 1 p Decile 5 p Decile 10