February 2, 2018

Fund Investors Turn Bullish on Equity Funds in the First Five Weeks of the New Year

by Tom Roseen.

Equity mutual fund (ex-ETF) investors have injected net new money into the conventional funds business for six consecutive weeks (+$2.3 billion for the fund-flows week ended January 31). Prior to that, equity mutual funds had suffered 39 straight weeks of net outflows. For the preceding three years mutual fund investors had also been net redeemers of equity funds, withdrawing $68.5 billion for 2015, $258.4 billion for 2016, and $132.0 billion for 2017.

Mutual fund investors appear to have had a change of heart and injected $6.1 billion net into conventional equity funds for this January. Equity performance was stellar during the month, barring a minor meltdown at month-end. For January the S&P 500 (+5.62%) and the Dow Jones Industrial Average (+5.79%) posted their strongest one-month gains since March 2016. However, from a flows perspective the difference between domestic and nondomestic equity fund flows remained the same, with domestic equity funds (ex-ETFs) experiencing net outflows of $9.2 billion for January while their nondomestic equity fund counterparts took in $15.2 billion during the same period.

Interestingly, despite increasing odds of another interest rate hike in March, mutual fund investors continued to pad the coffers of taxable bond funds, injecting a net $16.2 billion year to date. However, taxable bond funds experienced their first weekly net outflows in five during the fund-flows week ended January 31, with just $16 million being pulled out by investors.

On the ETF front authorized participants (those investors responsible for the creation and redemption of ETF shares) injected $56.1 billion net into equity funds (+$40.1 billion domestic and +$16.0 billion nondomestic) and $7.6 billion net for taxable bond funds year to date, with equity ETFs and taxable bond ETFs attracting $13.9 billion and $3.6 billion for the most recent fund-flows week.

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