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January 18, 2013

Lipper Fund Flows: The Stock Market Gains Ground and Fund Flows Follow Suit

by Lipper Alpha Insight.

With the market on tenterhooks to see whether fund flows would remain robust in the week ended January 16, in the wake of the previous week’s astonishing gains, the funds business got a helping hand from a flow of economic news and other market indicators. Investors continued to display a new preference for mutual funds over ETFs, however.

A combination of unexpectedly strong export news from China, continued weakness in the Japanese yen and a robust start to the fourth-quarter earnings season in the United States helped U.S. market indices gain ground in the week ending Wednesday, January 16, and helped to sustain investors’ enthusiasm for equities.

According to data released late yesterday by Lipper, equity funds followed the previous week’s blockbuster inflows – some of the largest recorded in years – with another strong week. True, all equity mutual funds and exchange-traded funds (ETFs) combined posted net inflows of only $286 million for the just-ended week, but conventional funds recorded an impressive $3.7 billion in net sales. That second straight week of buying has now pulled in some $11.3 billion of net new assets for these funds, a two-week move of a kind not recorded since April 2000, around the time that the dot.com bubble burst.

Meanwhile, equity ETFs saw outflows of $3.5 billion, marking the first week since late November 2012 that they have experienced net redemptions. Given the fact that the recent gains in the S&P 500 index have taken this market bellwether to five-year highs, these outflows could reflect some profit taking on the part of investors. However, they could also indicate that institutional investment managers are wearying of passive investment strategies and opting to put some of those indexed funds to work elsewhere.

Taxable bond mutual funds reported net inflows of $4.6 billion, as investors continued to allocate more cash to both domestic investment-grade products and international and global debt funds. These two groups reported net inflows of $2 billion and $709 million, respectively. Municipal debt funds were also among the winners this past week, attracting a net $1.4 billion of additional assets in their second consecutive week of $1 billion-plus inflows. On the other end of the spectrum, money market funds posted their first week of net outflows for the year, as $9.6 billion exited these safe haven investments.

Strong economic and earnings news appears to be underpinning both the stock market rally and this renewed interest in equities and, in particular, in stock mutual funds over ETFs. The stock market’s gains seem to provide investors with the perfect road map for more buying.

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

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