Monday, January 21, 2013

Are Favorable 2013 Equity Fund Flows Indicative Of Investor Sentiment Shift?

Recent media reports have noted the strong equity fund flows that have occurred during the first few weeks of January. Thomson Reuters' Lipper Fund Flow report cautions investors not to read too much into the positive equity flows to date. According to Lipper the first two weeks of January make the positive equity flows the largest two-week increase since April 2000. The actual flows show "$18.3 billion moved into equity mutual funds for the week ending January 9, i.e., $10.78 billion in ETFs and $7.53 billion in stock mutual funds.  Another $3.76 billion moved into stock mutual funds for the week ending January 16."

From The Blog of HORAN Capital Advisors

The Lipper report highlights a few cautionary points regarding these early year fund flows:
  • "First, while investors watch where the so-called smart money is heading, individual mutual fund flow trends have not historically earned that title. In fact, the retail crowd has often jumped onto certain trends at precisely the wrong time, including the technology stock run-up to the March 2000 market highs."
  • "Second, annual and quarterly rebalancing activities may distort what appear to be secular trends, such as the [reports] mention [of] 2010-2012 exodus from equity Large Cap Growth and Value, which may resume in the coming weeks."
  • "Finally, there is historic evidence of the trend from active to passive investment management continuing, though ETFs are as much a trader’s vehicle as they are an investor’s solution. This makes reading the tea leaves of ETF fund flows more challenging due to the potential to fluctuate more than mutual fund flows."
Lastly, Lipper's report notes beginning in March of 2011 through end of 2012 equity mutual funds have experienced 22-months of outflows. The report discusses the consequences of breaking this outflow streak.


Equity Mutual Fund Inflows – Less Than Meets the Eye
By: John Kozey
January 21, 2013

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