Lipper Fund Flows: Fund Investors Shrug Off Fiscal Cliff Brinksmanship

The outcome of Washington’s endless discussions is unclear, but while the uncertainty may be affecting stock market gains, it isn’t curbing enthusiasm for many fund categories.

With Christmas behind us and New Year’s Eve rapidly approaching, many investors are likely to remain on vacation until the dawn of 2013. Nonetheless, some remain, focusing intently on any bit of news that comes out of Washington as policymakers seem willing to do stand by and do nothing as the days tick down to the “fiscal cliff” deadline at the end of the year. And the financial markets are taking notice, with most major U.S. indexes wrapping up the week ended Wednesday, December 26 with declines of more than 1.5%. Yesterday, only news that the House of Representatives will reconvene on Sunday managed to push stocks back into breakeven territory. As time grows short, investors are waiting for the other shoe to drop.

The combination of the traditional year-end repositioning and concerns about the fiscal cliff don’t seem to have dented the confidence of many fund investors. For the week ended December 26, mutual funds and exchange-traded funds (ETFs) reported net inflows of $3 billion, excluding the inflows of $18.2 billion to money market accounts, according to data released late yesterday by Lipper.

Those investors who didn’t feel that keeping money on the sidelines in cash is the wisest way to wrap up 2012 continued to invest in equity fund products. Of the $3 billion invested in all kinds of equity funds in the week, once again ETFs continued to dominate, attracting $2.5 billion of those net inflows. That said, equity mutual funds finally broke out of the pattern of outflows in recent weeks, reporting net sales of $508 million, with strong interest in emerging market funds (which reported net inflows of $829 million for the week) offsetting the ongoing net sales in domestic equity mutual funds that totaled $751 million.

Taxable bond funds recovered from the redemptions they experienced in the previous week, attracting $936 million of net inflows. Investors continued to seek out quality; corporate investment-grade debt products attracted roughly $1 billion in net new assets. Meanwhile high-yield funds witnessed withdrawals of $159 million, one of the few categories of taxable funds to see net redemptions in the latest weekly period. Investors continued to demonstrate their concern about the status of municipal debt in any new taxation regime by pulling assets out of municipal bond funds. That group recorded its second consecutive week of net outflows, totaling $421 million, for a two-week streak of outflows not seen since August 2011. Nonetheless, those outflows have accounted for less than 1% of the total assets under management of municipal debt funds, which have attracted net inflows of $47.7 billion so far this year.

For more information on this week’s fund flows data, please refer toLipper’s database.