The Markets April 19, 2007

End of 2006 Sees Increase in World Mutual Fund Assets

Combined assets of the world’s mutual funds increased 7.6%, to $21.76 trillion at the end of the fourth quarter of 2006 and 22.5% for the year, according to the Investment Company Institute (ICI).
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Long-term funds – stock, bond, and hybrid funds – had a net inflow of $261 billion in the fourth quarter, about twice as high as the pace of net flows in the second and third quarters, but fell short of Q1 inflows of $409 billion, the ICI data showed.
Assets of equity funds climbed 10% to $10.5 trillion at the end of the last quarter while bond funds were up 4.3% and money market funds, up 4.9% in the same quarter. The assets of balanced/mixed funds rose by 7.9% to $2.1 trillion for the quarter, and for the year, assets in these funds grew 32.5% compared to 26.2% for equity funds and less than 15% for both bond and money market funds.
Net cash flow to mutual funds worldwide was $404 billion in the fourth quarter of 2006, with both long-term funds and money market funds experiencing aggregate net inflows. Equity fund flows worldwide were $150 billion in the fourth quarter, compared with $65 billion in the third quarter, according to ICI.
The Americas accounted for the lion’s share of equity flows, with $79 billion in the fourth quarter, followed by the Asia/Pacific region for $36 billion, and Europe for $35 billion of equity flows, up from $18 billion, $20 billion, and $26 billion, respectively, in the third quarter.
Net flows to bond funds strengthened to $40 billion in the fourth quarter of 2006 after posting a net inflow of $3 billion over the past two quarters combined, with the U.S. accounting for nearly the entire upswing.
Balanced fund inflows came in at $45 billion, while flows into money market funds were $143 billion the fourth quarter, up from $124 billion in the quarter before, with the U.S. accounting for $145 billion of money market inflows.
For the full fourth quarter ICI report visit http://www.ici.org/stats/mf/ww_12_06.html.
The Markets April 19, 2007

Mid-Cap Equities Will Be Strong in 2007

Investors would do well to focus on the mid-cap asset class in 2007, according to Standard&Poor's Equity Research Services.
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An S&P news release said that, as of April 17, the S&P MidCap 400 Index is handily outperforming the large-cap S&P 500 Index year-to-date, rising 8.9% versus only a 3.8% advance for the blue chip index.
Standard & Poor’s Equity Research believes it will be difficult for many large-cap companies to continue to post double-digit EPS advances, because of the size of gains needed. On the other hand, Standard & Poor’s believes mid-caps – defined as companies with market capitalizations ranging from $1 billion – $5 billion – are generally at an earlier point in their growth trajectories, leaving them with a potentially longer asset class profit cycle, according to the news release.
“In a slowing economic environment characterized by decelerating, single-digit EPS growth for the U.S. large-cap equity asset class, we believe investors are gravitating towards mid-caps’ ongoing profit momentum,” said Alec Young, Equity Strategist for Standard & Poor’s Equity Research, in the news release. “We expect 2007 EPS growth for the S&P MidCap 400 Index to rise 13% vs. a 7% gain for the S&P 500 Index.”

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