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April 19, 2013

Gold’s Selloff Sparks Largest Weekly Commodity Fund Outflows, As Investors Seek Yield & Safety

by Lipper Alpha Insight.

Anxiety and volatility dominated markets last week, and investors responded, displaying a clear preference for fixed-income products and non-domestic stock funds — and a definite aversion to commodities funds.

REUTERS/Jo Yong-Hak

REUTERS/Jo Yong-Hak

Not long after both the Dow Jones Industrial Average and the S&P 500 index set new records on April 11, investors began to demonstrate anxiety about just how sustainable the recent rally might prove to be. The news that China’s GDP in the first quarter grew only 7.7%, below the 7.9% that economists had forecast and that the country’s industrial production also was weaker than expected set the stage for a selloff at the beginning of this week. Gold added to the uncertainty, as the precious metal posted its largest one-day drop in some three decades or more; the gold market is now officially in bear

market territory. Volatility jumped and global markets continued to languish midweek, as of the end of trading on Wednesday.

This market weakness and anxiety didn’t stop U.S. investors from continuing to invest in mutual funds and exchange-traded funds (ETFs), however. According to data from Lipper, mutual funds and ETFs (excluding money market funds) reported net inflows of $6.5 billion for the week ended April 17, in spite of stock market selling pressure.

Taxable bond funds were once again the driving force for these inflows as investors continued to seek out a mix of yield and safely. Indeed, last week was the strongest showing in the last four weeks by this group; taxable bond funds garnered total net inflows of $4.3 billion, $2.4 billion of which was directed to mutual funds while the remaining $1.9 billion went to ETFs. Bank loan products continue to attract investors’ interest in taking on more risk if it is accompanied by a higher yield, and pulled in another $785 million in the just-ended week, marking 44 consecutive weeks of net inflows.

The recent equity market tu

rmoil did seem to cause uncertainty among at least some investors, as inflows into U.S. Treasury mutual funds and ETFs recorded just less than $1 billion of net new sales, their highest weekly inflows since November of last year. Municipal debt funds, on the other hand, continued to suffer; they recorded $535 million of net redemptions. Meanwhile, money market funds may have been feeling the impact of the looming income tax filing deadline: investors pulled $25.9 billion out of that group for the week.

The big surprise was the continued strength of investor interest in equity products, given the turmoil and selling pressure on stocks. Overall, the group posted its seventh consecutive week of net inflows, with interest being nearly evenly split between mutual funds (which attracted $1.1 billion of inflows) and ETFs (which saw net sales hit $1.6 billion.) But the emerging pattern of investors preferring to put their money to work in non-domestic funds remains intact, as net sales of funds in this category totaled $2.2 billion in the week. Clearly, investors are intrigued by what is happening in Japan, where ‘Abenomics’ has helped to spark a revival in the Japanese stock market: Japanese equity funds reported $1.7 billion

of net inflows for the week, supporting the broader non-domestic group. Meanwhile, domestic equity funds pulled in just over $500 million dollars for the week.

Unsurprisingly, given gold’s swoon, it was gold and precious metals products that posted the worst performance of the week, with Commodities Precious Metals funds reporting net outflows of $2.7 billion. That the largest weekly outflow ever recorded for this Lipper category, and was driven largely by the nearly $2.2 billion of net withdrawals from SPDR Gold Trust (GLD).

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