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February 15, 2013

Lipper Fund Flows: A Sideways Market Doesn’t Discourage Stock Mutual Fund Investors

by Lipper Alpha Insight.

Major U.S. stock market indices may have spent much of the most recent week moving sideways, but that didn’t stop investors from pouring more money into conventional stock mutual funds, even as they pull back from the more passive equity ETFs.

Stronger economic data in both the United States and China may not have produced a big gain in U.S. equity markets – which generally moved sideways for four of the five-day period ended February 13 – but that didn’t stop investors from extending their love affair with mutual funds and exchange-traded funds (ETFs).

Funds of all kinds reported total net inflows of $4.4 billion during that just-ended weekly period, according to data released late yesterday by Lipper, with equity funds grabbing much of the attention. Although the $559 million of net inflows this group recorded during the week is significantly lower than the levels we have seen in what has been a record-breaking 2013, much of that can be traced to the way investors’ attitudes toward ETFs and mutual funds is beginning to diverge. Stock mutual funds, for instance, recorded their sixth straight week of inflows, pulling in an impressive $2.4 billion. That’s a clear signal that retail investors remain optimistic with respect to the stock market, and also confirms that the $37.4 billion of inflows that conventional funds in the equity space recorded for January – a 12-year record – wasn’t an anomaly. Year-to-date flows into stock mutual funds now total nearly $44 billion.

On the other sign of the coin, investors pulled cash out of stock market ETFs, redeeming a net $1.8 billion in the week ended February 13. One possible reason for this may be unease about the magnitude of the market’s rally so far this year. Some investors clearly feel that stocks are primed for a correction, and may well view ETFs as the easiest way to take some profits off the table. The other possible explanation for this phenomenon is that institutional investors opted to reallocate, taking some of their passive exposure to stocks (expressed via their ETF holdings) and shifting it into specific market sectors.

Investors continued to direct fresh capital into taxable bond funds in the most recent week; the funds in this category recorded a sixth consecutive week of net inflows that totaled $3.3 billion. That figure was right in line with the group’s four-week moving average. Interestingly, much of the movement on the taxable side can be traced to investors’ growing interest in bank loan products, as the combination of yield and interest-rate protection these vehicles offer become ever more popular. These bank loan products attracted a net $1.4 billion of new capital for the just-ended week. International and global debt funds drew in an additional $789 million of capital, extending their own ‘winning streak’ to an impressive 33 weeks, while municipal bond funds reported net inflows of $491 million. Safety appeared to be a lower priority than yield in the week, as U.S. Treasury-based products saw net outflows of $310 million while money market accounts recorded a second week in a row of net outflows, which totaled $9.7 billion for the period ended February 13.

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

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