June 23, 2013

Lipper U.S. FFIR Summary: Net Flows Into Mutual Funds Remain Strong in May Despite a Late-Month Selloff

by Ed Moisson.

Despite a lackluster earnings season that generally showed unimpressive revenue growth, many U.S. stocks hit new 52-week highs during May and the S&P 500 posted its seventh consecutive month of plus-side returns—up 2.08%. At the beginning of the month investors celebrated a better-than-expected April jobs report, which showed U.S. nonfarm payrolls increased 165,000 and the unemployment rate fell to 7.5%. However, prospects of the Federal Reserve beginning to reduce its bond-buying stimulus rattled market constituents. Late in the month investors began showing a little rally fatigue after Fed Chairman Ben Bernanke told Congress the central bank could start reducing its bond-buying program over the next several months and after some pundits began questioning the staying power of Japan’s “Abenomics.”

REUTERS/Gleb Granich

REUTERS/Gleb Granich

Undeterred by the selloff in equities toward month-end, investors continued their month-long trend of pushing Treasury prices lower on concerns the Fed will slow the pace of its bond purchases, which sent  benchmark ten-year Treasury yields to their highest close since April 5, 2012. After hitting a closing low of 1.66% early in the month, Treasury yields generally rose, ending the month up a whopping 46 basis points (bps) at 2.16%.

For the eleventh consecutive month investors were net purchasers of fund assets, injecting a net $63.9 billion into the conventional funds business (excluding exchange-traded funds [ETFs]). Mutual fund investors continued to pad the coffers of bond funds (but only to the tune of $0.7 billion, their smallest monthly net inflow since August 2011). Stock and mixed-asset funds gained $33.4 billion, for a fifth consecutive month of strong net inflows, while for the first month in five investors injected money into money market funds—some $29.8 billion.

Overall, exchange-traded funds (ETFs) posted their eighteenth consecutive month of net inflows at $19.7 billion—bringing their year-to-date net inflows to $80.3 billion. May was also the second strongest month of ETF inflows in 2013 after the spectacular start in January. Stock and mixed-equity ETFs, with net inflows of $16.1 billion, were the main attractors of new assets. U.S. Diversified Equity (USDE) products continued to lead the charge with net inflows of $9.7 billion. Investors also added $4.7 billion net to world equity funds and added exposure to sector-specific products. As mentioned earlier, concerns over a sudden spike in yields forced investors to review their fixed income holdings. Although overall bond ETF net flows were positive (+$3.7 billion), many investors began to pull cash out of high-yield products in preference for higher quality and shorter durations.

To read our complete May FundFlows Insight Report, please click here.

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