by Tom Roseen.
Stock ETF investors pulled money off the table in response to the market’s volatility and the decline in the price of gold. But while the net inflow into equity funds of all kinds turned negative, investors continued to contribute net new funds into conventional mutual funds as well as taxable fixed income funds.
Political uncertainty dominated financial markets news throughout the final week of trading in February, triggering a rise in the CBOE Volatility Index, or VIX, to levels not seen since last December – the last period in which Washington gridlock caused fear and uncertainty on Wall Street. The panic appeared to be at its height on Monday, when the combination of Italy’s uncertain election results and the growing probability that the Washington stalemate would lead to the specter of sequestration culminated in the worst one-day session for the Dow Jones Industrial Average so far this year, with the blue-chip index dropping 216.40 points.
Whether it was because of some good news that helped keep markets from falling further – a better-than-expected German business climate survey, a big gain in the Case-Shiller home price index and a report of a 15.6% jump in new home sales in January, and more good news from fourth-quarter earnings reports at home – or because they believe in the long-term prospects for financial assets, U.S. investors remained net purchasers of fund assets for the week. The flows into all kinds of funds, including exchange-traded funds (ETFs) totaled $7 billion in the week ended February 27, according to data released late yesterday by Lipper.
There was one big change, however, equity mutual funds and equity ETFs as a group suffered their first week of net redemptions in the last ten weeks, as investors took some of their hard-won profits off the table out of fear that they might be in jeopardy in a deteriorating investment climate. All told, these investors pulled a net $900 million out of stock mutual funds and ETFs, although they injected $4 billion of new capital into taxable bond funds as well as $300 million into municipal bond funds (their ninth straight week of net inflows) and $3.6 billion into money market funds, a traditional safe haven in times of volatility or anxiety.
The most recent weekly period was the first time in eight weeks that equity ETFs experienced net outflows, as investors pulled out some $3.8 billion. Some fund behemoths handed back the largest amounts in the ETF universe: SPDR Gold saw net withdrawals hit $2.1 billion (not surprising, in light of the plunge in the price of gold bullion), followed by SPDR S&P 500 ETF, whose investors pulled out a net $736 million.WisdomTree Japan Hedged Equity Fund leaped to the forefront, attracting $342 million of net inflows, while iShares Dow Jones U.S. Real Estate ETF was among the biggest gainers, pulling in another $334 million.
But investors’ affection for their conventional equity mutual fund brethren appears to be undiminished: this group attracted $2.8 billion of inflows, bringing the year-to-date total to an impressive $49.7 billion and marking the eighth consecutive week of inflows, the first such eight-week period in nearly two years. While domestic equity funds witnessed net inflows of $800 million, their nondomestic equity fund counterparts grabbed the spotlight by attracting some $2 billion of net inflows. Lipper’s Emerging Markets Funds classification continues to rule the roost among these global funds, pulling in $1.1 billion in the week and making it the seventh week out of the last eight in which it has attracted inflows north of $1 billion. Once again, large-cap funds were the big gainers on the domestic front, attracting some $400 million during the five-day period.
Mutual fund investors were willing to take on a little more risk in the taxable fixed income funds space, where inflows totaled $2.9 billion overall. Of that, investors directed some $1.6 billion on a net basis into corporate debt funds (which recorded their thirty-seventh consecutive week of net inflows). Of that sum, in turn, Bank Loan Funds accounted for $1.2 billion, marking the 37th straight week of inflows and the second-largest weekly net inflow level since Lipper began tracking this information in 1992. Meanwhile, Flexible Income Funds pulled in some $1.4 billion of net new assets.