US Stock & Bond Mutual Funds See Net Inflows of $34B in Jan. 2011 as US Equity Funds Rebound

Feb. 11, 2011 - PRLog -- Demonstrating renewed demand for US equity funds, US mutual fund investors added about $34 billion in net new cash to US stock and bond mutual funds in January 2011 (in open-end and closed-end mutual funds, excluding ETFs and funds underlying variable annuities). With healthy demand for both equity funds and taxable bond funds, January’s net inflows were an improvement over December’s roughly $16 billion in net outflows from long-term funds.

An estimated $21 billion in net new cash went into US equity funds in January 2011, portending a stronger year for US equity fund flows, according to Strategic Insight, a business intelligence provider to the worldwide fund industry. January was the first month of net inflows to US equity funds since April, when investors put $11 billion into domestic stock funds, and the first time US equity funds topped $20 billion in net inflows since February 2004.

“The interest in stocks is being shored up by a new year, stock prices which have doubled since their bottom in early 2009, and a near consensus about the relative advantage of US Large Cap stocks. Looking ahead, up-trending economic and employment indications should further improve investors’ sentiment,” said Avi Nachmany, SI’s Director of Research.

“The remarkable increase in stock prices in recent years, and consensus expectations for 2011 to be another year of gains, should continue to stimulate sales increases for equity fund. We project equity fund sales growth of 22% in 2011,” Nachmany said. [The projection is from Strategic Insight’s recently released, 45-page report, ‘Forces Shaping the Mutual Fund Industry in 2011 and Beyond’.]

While flows into US equity funds nearly doubled the pace of flows into US-based international stock funds, international equity funds still drew $12.5 billion in January. This marked the eighth straight month that international/global equity funds saw positive flows.

Bond fund total returns turned decidedly positive in January, following two months of negative returns. This helped spark demand for taxable bond funds – especially floating rate, high yield and global bond portfolios – leading to net inflows of nearly $13 billion in January. Investor appetite for income in a period of near-zero yields on money fund and bank deposit accounts continues to support bond fund inflows.

Net outflows of nearly $13 billion from muni bond funds were largely triggered by liquidity conditions, including an unusually large slate of muni new issues in recent months, as well as concerns about the finances of many states and municipalities in the wake of the financial crisis and a sluggish economic recovery. Muni bond funds are unlikely to continue to see such dramatic outflows in the long run, as the fears over municipal defaults may be overblown, and new issues of muni bonds are starting to slow.

Flows into bond funds are likely to remain robust in 2011, even as they decline from the record levels of 2009 and the near-record levels of 2010. The search for yield continues to support bond fund sales, yet at a lower volume -- we project aggregate bond fund sales to decrease by about 10% in 2011. “We expect new sales of bond funds in 2011 to exceed $750 billion, and offer a wide range of opportunities for fund managers,” Nachmany said.

Money-market funds saw net outflows of $77 billion in January. This followed net outflows of $509 billion in 2010.


ETFs: Separately, Strategic Insight estimated that investors poured an additional $10.9 billion into US Exchange-Traded Funds (ETFs) in January 2011, the fifth straight month of positive flows to ETFs . Flows were driven mostly by demand for US equity ETFs (especially growth funds and sector funds). Bond ETFs, led by high yield and short-maturity products, saw net inflows for the first time since October.

At the end of January, US ETF assets stood at a record $1.02 trillion. “With such a diverse range of assets drawing flows, it will be interesting to see if ETFs have their fifth straight year of $100 billion or more in net inflows,” said Loren Fox, senior research analyst at Strategic Insight.

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Strategic Insight, an Asset International company, is a leading research firm for the mutual fund and wealth management industry, providing clients with in-depth studies, consultation, and electronic decision support systems.