March 2, 2018

Despite the Market Meltdown, YTD Fund Flows and Returns Remain Positive

by Tom Roseen

Equity mutual funds (-4.07%) witnessed for February their first month of negative returns in 16. Despite the early/mid-month market meltdown that was tagged by many pundits as having entered correction territory (a price decline of at least 10% from a recent market high), year to date through February 28 the average equity fund return (+0.22%) was still on the plus side and still up 14.96% for the one-year period.

For the month of February Thomson Reuters Lipper’s Mixed-Asset Funds macro-classification (comprising primarily target-date and target-risk funds) mitigated losses (-2.98%) better than its U.S. Diversified Equity Funds (-3.61%), Sector Equity Funds (-5.04%), and World Equity Funds (-4.43%) counterparts.

In spite of the recent market losses, investors appeared to continue to embrace nondomestic equity funds, injecting $16.9 billion net into the macro-group for the month of February while being net redeemers of domestic equity funds (-$34.4 billion). However, for the year to date estimated net flows into both groups remained on the plus side, $15 million and $57.3 billion respectively.

While fund investors were net redeemers of municipal bond funds (-$591 million) and money market funds (-$7.1 billion) for the fund-flows week ended February 28, 2018, they padded the coffers of equity funds (+$13.3 billion) and taxable bond funds (+$854 million).

Interestingly, in spite of the upward shift in the yield curve and increasing inflation concerns, taxable bond funds attracted a preliminary $1.5 billion net for the month of February, with net inflows into corporate investment-grade debt funds (+$10.0 billion) offsetting the net outflows from corporate high-yield debt funds (-$10.4 billion) and the net inflows into government-Treasury funds (+$5.0 billion). That kept the tally in positive territory after accounting for net outflows from smaller groups.

Preliminary year-to-date figures showed taxable bond funds attracting some $41.7 billion net, with corporate investment-grade debt funds collecting the lion’s share of net new money (+$35.9 billion).

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