Ebb and Flow

There is a tide in the affairs of men,

Which, taken at the flood, leads on to fortune;

Omitted, all the voyage of their life

Is bound in shallows and in miseries.

On such a full sea are we now afloat,

And we must take the current when it serves,

Or lose our ventures.

William Shakespeare, The Tragedy of Julius Caesar, Act 4, Scene 3

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Lipper’s Global FundFlows report, reporting on November-end mutual fund data, has been produced.

Global mutual fund assets under management (AUM) rose for a fourth consecutive month to US$28.5 trillion.

Source: Lipper, a Thomson Reuters company

November was a mixed month for asset performance, with equity, mixed-asset, and alternatives funds enjoying steady growth, whilst bond, real estate, money market, and commodity funds all fell in aggregate.

Estimated net flows (ENF) of mutual funds were positive for November, but once again Lipper recorded that bond funds suffered large net outflows, whilst equity funds recorded net inflows. This appears to be an ongoing pattern akin to a sea change, whereby investors seem to be gradually making a transition from fixed income to variable income, perhaps taking on more risk as economic signals continued to indicate an improved growth outlook.

Source: Lipper, a Thomson Reuters company

The six-month and one-year flows shown in Table 2 illustrate the sea-change transition over the last year from bond funds, with an average US$40 billion of investor capital per month consistently switched into alternatives, mixed-asset, and equity fund strategies. It also suggests that the global mutual funds industry has been successful in attracting new investor money as well as facilitating the redirection of old money. This backs up recent theories that suggest retail investors are required to take on more risk in order to earn traditional savings rates and to maintain their levels of income; they are perhaps more reliant on the funds industry now than ever before. Alternatively, the data might just reflect the fact that mutual funds are more accessible than they used to be, with online platforms and the advent of Internet advice, Internet products, and increased transparency.

The best selling Lipper global classifications for November were those that focus on developed markets:  Equity US Income, Equity Global, and Equity Europe. We saw outflows in Equity Japan despite good performance for the month and YTD performance of circa 45%, suggesting that some profit taking may have been realized. Short-term bond funds had been very popular since the spring because of low interest rates and anticipated rate rises, and this was still the case according to the latest figures. Investors were clearly not convinced of the stability of Asian markets, despite some strong performance (e.g., Equity China—up 3.7%—was the best performing region for November, and yet it had net outflows of US$0.3 billion). Asset allocation or multi-asset funds were selling well on the whole, but investors expected these mixed-asset active managers to avoid short-term heavy losses. In the April-August period some funds did get caught out and lose more money than deemed comfortable or were slow to adjust their allocations. In these cases it was no surprise that outflows would be seen to follow the poor period of performance.

Figure 1    Five Top and Bottom Classifications’ Estimated Net Flows for One Month and One Year as of November 30, 2013

Source: Lipper, a Thomson Reuters company