Investors Choose International over Domestic Equities

For the third consecutive month, investors deposited a $40 billion-plus amount into bond funds, bringing year-to-date bond fund flow volumes to an enormous $330 billion, according to data from Strategic Insight (SI), an Asset International company.

SI’s Highlights of October 2009 Mutual Fund Industry results showed equity fund flows, on the other hand, remained small in October, as investors remained wary of stocks for the most part. SI said it projects only a slow recovery in stock fund sales next year, and for high bond fund demand to persist.

International equity fund flows rose to $14 billion in October, while U.S. equity funds suffered net outflows (for the second straight month), reducing the aggregate equity fund net flow total for October to $7 billion. U.S. dollar depreciation and concerns have boosted flows into international/global equity funds in 2009, which have brought in roughly $70 billion on a net basis over the April-October period this year, double the volume received by U.S. equity funds over the same period, the report said.

Assets in money-market mutual funds, where investors are currently earning near-zero yields, declined by an additional $64 billion in October, as shifts to higher-yielding investments persisted.

ETF/ETN flows totaled $7 billion in October, and were driven by Diversified Emerging Market equity; Inverse-exposure; Short- and Intermediate-term and Inflation-Protected Bond; and Precious Metals funds. Year-to-date through October, ETFs/ETNs have collectively garnered an estimated $70 billion in net new flows, compared to the same period last year, when the products had captured $110 billion in net flows through October.

Actively managed U.S.-focused equity/hybrid funds suffered net outflows of about $8 billion in October.

Among smaller-size managers of long-term funds, those that led in total long-term fund flows in October were TCW, Van Eck, Manning & Napier, Rafferty Asset Management, Sentinel Asset Management, Metropolitan West Asset Management, International Value Advisors, Matthews Asian Funds, Lazard Asset Management, and Henderson Global.

Among the largest firms (firms with more than $20 billion in long-term fund assets under management), those garnering the most long-term fund flows were PIMCO/Allianz Global ($10.2 billion); Vanguard ($9.9 billion); Barclays Global Investors ($3.7 billion); JPMorgan ($3.7 billion); Franklin Templeton ($3 billion); Wells Fargo ($1.7 billion); BlackRock ($1.4 billion); Northern Trust ($1.3 billion); T. Rowe Price ($1.2 billion); and Goldman Sachs ($1.1 billion).


The SI report can be accessed by members at www.sionline.com.

Consumers Unaware of Roth Conversion Law Change

The pending law change regarding Roth IRA conversions might be right around the corner, but you couldn’t tell by many Americans’ interest level in the upcoming development.

A release about the October survey of the First Command Financial Behaviors Index said the poll found 84% of middle-class consumers are not aware that a new Roth conversion law goes into effect on January 1, lifting the $100,000 income limit on Roth IRA conversions and allowing investors to pay the resulting tax bill over a two-year period. Even after they found out about the pending law change, only 6% of survey respondents indicated they plan to pursue a Roth IRA conversion.

According to the survey, 23% of respondents said they do not plan on converting their retirement accounts because they expect to be in a lower income tax bracket in retirement. Americans also say they won’t convert because they don’t have money to pay the conversion taxes (12%) and that such a move would bump them into a higher tax bracket (11%).

As of the end of the third quarter, the index revealed that Americans with a financial plan felt better about their financial future than those without a financial plan. Forty one percent of Americans with a financial plan are confident in their ability to retire comfortably—significantly more than the 25% of Americans without a financial plan. Also, 40% of Americans with a financial plan felt extremely or very secure financially compared to only 27% without a plan.

“We expect the level of interest and commitment to rise appreciably during the coming weeks as financial professionals continue to reach out to their clients,” said Terri Kallsen, and executive vice president of strategic development at First Command. “Notably, 22% of survey respondents with a financial plan are already aware of the new law, and 10% of those working with a financial planner expect to convert their traditional accounts into Roth IRAs. Clearly financial advisers are busy educating Americans about this unique but admittedly complex opportunity and helping them determine the best course of action for their own situation.”

 

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More information about Roth conversions is available at www.firstcommand.com/rothnow/.

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