Active stock funds take in $272.5 billion as dividend yields sink

The S&P 500's dividend yield has sunk to 1.08%, its lowest level since July 2000. Investors who once collected index payouts are finding less to collect. Money is moving into active stock funds and options strategies that generate income another way.

Active equity funds took in $36 billion in July, according to State Street Investment Management's report, as covered by ETF Trends. Year-to-date inflows stand at $272.5 billion, keeping the category on pace for a record year. Traditional active equity funds brought in $28.7 billion of July's total. Technology mandates led with $6.8 billion, followed by $4.2 billion for large-blend and $3.2 billion for large-value.

The flows are running against performance. Fewer than half of active large-blend and large-value managers beat their benchmarks over the past year, the report found, yet large-cap funds drew the heaviest July inflows. Matthew Bartolini, State Street's global head of research, ties the demand to the macro backdrop: tariff uncertainty, unclear Fed policy signals and wide earnings swings.

Options-based strategies are growing faster. Non-traditional active equity strategies pulled in $7.4 billion in July. Derivative income funds, which sell options to generate payouts, collected $6.9 billion of that and $39.9 billion for the year. Defined outcome funds, which use options to cap gains and losses, round out the shelf.

T. Rowe Price is packaging two versions of this trade. The Capital Appreciation Premium Income ETF (TCAL) buys U.S. stocks and sells call options against individual holdings. David Giroux and his team run it, targeting lower-volatility, high-quality companies and writing calls further out of the money than many peers to chase larger premiums. The Capital Appreciation Equity ETF (TCAF) holds about 100 companies with no options overlay, aimed at investors who want core stock exposure without the derivative strategy.

The split is telling. One fund sells income; the other sells stock selection. The flow data suggests investors care more about the first. With the index yield at 1.08%, these flows pay active managers to create what the index no longer provides.