A Record Amount of Money Sitting on the Sidelines

For the Lipper fund-flows week ended Wednesday, April 15, 2020, investors appeared to be a little more game at putting risk back in their portfolios, injecting a net $62.9 billion into mutual funds and ETFs. Fund investors were net purchasers of money market funds (+$46.8 billion), taxable fixed income funds (+$10.3 billion), equity funds (+$5.0 billion), and municipal bond funds (+$833 million) this week.

However, for the equity side of the business, we see that fund investors remained reluctant during this turbulent time to jump back into the fray, being net redeemers of equity funds, withdrawing a net $2.7 billion for the most recent fund-flows week. Year to date, mutual fund investors have withdrawn a net $84.3 billion from conventional equity funds.

In contrast, authorized participants (APs—those investors who actually create and redeem ETF shares) were net purchasers of equity ETFs for the flows week, injecting a net $7.7 billion. Despite the market implosion, APs have injected a net $49.7 billion into equity ETFs year to date.

Both investor types appear to have begun to reinvest in taxable fixed income funds and ETFs for the most recent flows week, with conventional fund investors padding the coffers of taxable bond funds to the tune of $2.4 billion after pulling out a record monthly sum of $255.9 billion in March. Conversely, APs were net purchasers of taxable bond funds for the third consecutive week, injecting $7.9 billion to push their year-to-date total to $24.1 billion.

Perhaps most interesting, but a bit boring from a plain vanilla point of view, is the fact that fund investors continued to earmark money for investments. They injected a net $46.8 billion into money market funds for the flows week—the macro-group’s seventh consecutive week of net inflows—bringing the total net inflows year to date to a whopping $843.4 billion. This beats every full-year net sum going back to at least 1992. The next largest sum occurred in 2007, when investors injected a net $720.3 billion.

Once the panic and despair of COVID-19 begins to wane and economic and business fundamentals start moving in the right direction, there appears to be a large amount of pent-up demand and money sitting on the sidelines that is prepared to be put back to work. For the one-year period ended March 31, 2020, investors have injected a net $1.2 trillion into money market funds, while redeeming a net $182.5 billion from equity funds and ETFs and injecting a net $195.9 billion into fixed income funds (including taxable and tax-exempt funds and ETFs).