Lipper FundFlows Insight Summary: Despite Market Concerns, Investors Continue to Pad the Coffers of Mutual Funds in January

With the S&P 500 index (-3.46%) posting its worst January return since 2010 and the Dow Jones Industrial Average (-5.30%) chalking up its worst January return since 2009, it was somewhat striking to see that investors did not cut and run at the first sign of retracement and consolidation. Although the real meltdown didn’t materialize until the very end of the month, investors were cautious after the spectacular equity run-up in 2013, the Federal Reserve’s commitment to continue tapering its now $75-billion/month bond-buying program by an additional $10 billion in February, and the mixed economic news throughout January. Shrugging off generally better-than-expected fourth quarter earnings reports, some investors decided to take some of those hard-won profits off the table (since many pundits believe we are ripe for a near-term correction), while many others decided to stay put.

REUTERS/Toru Hanai

Despite mixed reactions in the market, for the seventh consecutive month investors were net purchasers of fund assets, injecting a net $26.8 billion into the conventional funds business (excluding exchange-traded funds [ETFs]) for January. For the first month in eight mutual fund investors were net purchasers of fixed income funds, although to the tune of only a net $0.3 billion. For the thirteenth consecutive month investors remained net purchasers of stock & mixed-asset funds, injecting $39.9 billion, while for the first month in three they were net redeemers of money market funds (-$13.4 billion net for January).

USDE Funds attracted net inflows for the ninth consecutive month (+$10.6 billion). The Large-Cap Core Funds classification (December’s group laggard) took in the largest net inflows (+$6.7 billion) of the 4×3-matrix fund classifications, followed by Multi-Cap Core Funds (+$4.3 billion). Five of Lipper’s USDE classifications handed back money for the month, with large-cap funds and multi-cap funds housing two of the largest net redemptions: Large-Cap Growth Funds (-$2.1 billion) and Multi-Cap Growth Funds (-$1.7 billion). Once again investors appeared to shrug off news that showed a slowdown in China’s manufacturing sector and renewed fears of deflation in the Eurozone and injected a net $17.4 billion into World Equity Funds for January—for the macro-classification’s thirteenth consecutive month of net inflows and its strongest since January 2013.

In contrast to investor behavior in conventional mutual funds, authorized participants in January pared back their exposure to equities on concerns of an overextended market, leading to the first monthly net redemptions in five for exchange-traded funds (ETFs)—the group witnessed $14.2 billion of net outflows for January. Stock and mixed-equity ETFs, with net outflows of $14.4 billion for January, experienced the largest share of net outflows for the month. With the broad-based equity indices witnessing their largest January declines in at least three years, it wasn’t too surprising to see USDE ETFs (-$15.4 billion) taking it on the chin and suffering the largest net redemptions for January.

The World Equity ETFs macro-classification (-$1.8 billion) witnessed its first month of net redemptions in seven. On mixed news out of developed and emerging markets, investors once again injected net new money into European Region ETFs (+$3.8 billion) for the ninth consecutive month, while being net redeemers for the third consecutive month from Emerging Markets ETFs (-$8.8 billion for January) as qualified participants weighed the global news. Investor interest in the developed international markets continued, with International Large-Cap Core ETFs (+$1.7 billion) taking in the largest sum of net new money for January of Lipper’s global and international 3×3 matrices.

For the first month in four bond ETFs (+$0.3 billion) witnessed net inflows. On the taxable bond ETFs side (+$150 million for January) 14 of the 26 Lipper classifications handed back money for the month, while the tax-exempt offerings (+$116 million net) reported net outflows for only 2 of the 7 classifications. General U.S. Treasury ETFs (+$0.6 billion net) led all of the other classifications.

If you’d like to read the entire January 2014 FundFlows Insight Report with all its tables and charts, please click here.