In May, domestic equity funds saw net outflows of nearly $5 billion, during a month of poor stock returns: the average US stock mutual fund lost 4.2% in the month, on an asset-weighted basis. That brought total US equity fund flows to -$7.4 billion for the first five months of 2012 – a sharp reversal from the first five months of 2011, when US equity funds enjoyed cumulative net inflows of $40 billion.
International / Global equity funds offered some relief, drawing net inflows of $5 billion in May, but that was down from the $6.5 billion they took in the prior month. In the first five months of 2012, international equity funds drew aggregate net inflows of $27.6 billion.
“US investors’ psyches have been battered with a stream of negative news, whether disappointments in job growth or disappointing progress on the euro-zone problems. This has exacerbated the caution that many investors already felt,” said Avi Nachmany, SI’s Director of Research. “Until we see sustained improvement in employment growth and real progress on Greece and the euro, caution will probably favor bond fund flows over stock fund flows.”
Taxable bond funds saw net inflows of $9 billion in May, the smallest amount of net inflows they’d experienced since they attract just over $8 billion in December 2011. Investors continued to use bond funds as income-producing solutions amid extremely low rates. Short- and intermediate-
Taxable bond funds have drawn an estimated $110 billion in the first five months of 2012, far ahead of the $80 billion in net flows that taxable bond funds took in over the course of 2011’s first five months.
Meanwhile, muni bond funds saw net inflows of $5 billion in May. Muni bond funds drew $24 billion in net inflows through the first five months of the year, as long-term muni bond issuance has risen substantially from year-earlier levels.
Money-market funds saw net outflows of $2 billion in May, which was an improvement over April’s net outflows of $22 billion. Ultra-low yields continued to hamper demand for money market funds even as more investors turned to them as a safe haven.
ETFs: Separately, Strategic Insight said US Exchange-Traded Funds (ETFs) saw roughly $2 billion in net inflows in May 2012. That brought total ETF net inflows to $60 billion for the first five months of 2012 – a pace that could result in the sixth straight year of $100 billion or more in annual net inflows to US ETFs.
Bond ETFs were the only major category to post net inflows in May, drawing net nearly $8 billion. Equity ETFs saw an estimated $6 billion in net outflows, with both domestic and international equity products seeing net redemptions. Real estate and gold ETFs also saw significant net inflows. “ETFs are often used to express investor sentiment regarding the financial market, and so the redemptions from stock ETFs are sending a clear message,” said Loren Fox, SI’s head of ETF research.
At the end of April 2012, US ETF assets (including ETNs) stood at $1.13 trillion, down from $1.2 trillion at the end of April.