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March 8, 2013

Lipper Fund Flows: Sequester? What Sequester? YTD Stock Mutual Fund Inflows Hit $59 Billion

by Lipper Alpha Insight.

Investors pushed any concern about the standoff in Washington to one side, pulling money out of low-risk money market funds and re-allocating it to the pursuit of higher yields in bank loan products and junk bond funds, and growth, in the form of another round of inflows into stock mutual funds.

With the first two months of 2013 behind us, both the economy and the financial markets seem to be gaining ground, albeit not always at a consistent or rapid pace. By the time February drew to a close, broader U.S. equity indices had left investors with a year-to-date gain of roughly 6%, while the employment data seemed relatively robust, China’s economy showed more signs of growth in the form of stronger export data and the fourth quarter GDP figures were revised higher. That has led to greater confidence on the part of investors, in spite of the enactment of sequestration. Pushing any anxiety over the impact of mandatory government spending cutbacks on the economy to the back burner, they pushed the Dow Jones Industrial Average back above all-time highs recorded in the autumn of 2007, before the financial crisis, earlier this week.

The generally optimistic mood paved the way for further inflows into funds in general and stock mutual funds and exchange traded funds (ETFs) more specifically. According to data provided by Lipper, net fund inflows for the five-day period ended March 6 totaled about$10.8 billion, while equity funds reported net inflows of $5.7 billion. Equity mutual funds marked their ninth consecutive weeks of inflows– as well as being the strongest of the last four weeks – and brought the year-to-date total inflows to an impressive $59 billion.

Of that, domestic U.S. stock mutual funds accounted for about $26.3 billion, while the balance was allocated to their international or overseas mutual fund counterparts. Taking the flows for mutual funds and ETFs together, however, investor interest in emerging markets appeared almost flat, with the net redemptions of ETFs in this category (totaling $1.023 billion) nearly wiping out the $1.026 billion of inflows reported by their emerging markets mutual fund counterparts.

In spite of the continued enthusiasm for stocks, taxable bond funds posted net inflows of $5.3 billion, the largest weekly gain since early November 2012 and the ninth week in a row of net inflows: clearly, investors aren’t abandoning bonds altogether amidst their affection for stocks. They are, however, being aggressive in their quest for yield, continuing to demonstrate a clear preference for bank loan funds, which attracted $1.1 billion in net new capital during the just-ended week. (So far this year, bank loan funds have attracted a total of $10.8 billion.) The pursuit of yield also steered investors in the direction of junk bonds in the just-ended week, as high-yield bond funds broke a four-week losing streak and reported net inflows of $820 million.

Meanwhile, investors continued to display their willingness to embrace risk by pulling cash out of money market products, to the tune of $12.9 billion in the just-ended week. Municipal debt funds reported their first week of outflows in the past nine, with outflows totaling $97 million.

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