The Markets May 10, 2012

U.S. Equity Funds See Net Outflows For Second Month

 

Investors put only $26.5 billion in net inflows into stock and bond mutual funds in the U.S. in April.  

 

 

Reported by

This marked a decline from March, when investors put net $32 billion in flows into long-term funds, according to Strategic Insight (SI), an Asset International company.

In April, domestic equity funds saw net outflows of nearly $6 billion during a month of lackluster demand for U.S. stocks: the benchmark S&P 500 Index generated a total return of -0.6% in April amid trading volumes that were down more than 8% from the trailing 12-month average. That brought total U.S. equity fund flows to -$6 billion for the first four months of 2012—a sharp reversal from the first four months of 2011, when U.S. equity funds enjoyed cumulative net inflows of $41.9 billion.

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International and global equity funds offered some relief, drawing net inflows of $10.4 billion in April—the best month for such mutual funds since March 2011. In the first four months of 2012, international equity funds drew aggregate net inflows of $26.5 billion.

“Investors remain in a holding pattern, as economic growth rates declined or turned negative in a number of key markets,” said Avi Nachmany, SI’s director of research. “The fragile state of investor confidence will benefit bond fund inflows in the near future as investors stay centered on income strategies.”

 

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Taxable bond funds saw net inflows of $21 billion in April, as investors continued to use bond funds as income-producing alternatives to money market funds, CDs and bank deposit accounts. Highlighting fund shareholders’ low appetite for risk, low-volatility bond funds took by far the largest portion of bond fund flows in April. Taxable government-backed bond funds saw very small net inflows. Taxable bond funds have drawn an estimated $104 billion in the first four months of 2012, far ahead of the $59 billion in net flows that taxable bond funds took in over the course of the same period a year ago.

Meanwhile, muni bond funds saw net inflows of $0.6 billion in April. Muni bond funds drew $17 billion in net inflows through the first four months of the year, as long-term muni bond issuance has risen substantially from year-earlier levels.

Money market funds saw net outflows of $22 billion in April, which was an improvement over March’s net outflows of $69 billion. Ultra-low yields continued to hamper demand for money market funds. 

Separately, SI said U.S. exchange-traded funds (ETFs) saw roughly $3 billion in net inflows in April 2012. That brought total ETF net inflows to $58 billion for the first four months of 2012—a pace that could result in the sixth straight year of $100 billion or more in annual net inflows to ETFs.

Bond ETFs were the only major category to post net inflows in April, drawing net $5 billion. Equity ETFs saw an estimated $2.5 billion in net outflows, with both domestic and international equity products seeing net redemptions.

At the end of April 2012, ETF assets (including exchange-traded notes) stood at $1.204 trillion, up from $1.06 trillion at the end of December.

 

The Markets May 10, 2012

Positive First-Quarter Returns for U.S. Master Trust Universe

The median return of BNY Mellon’s U.S. Master Trust Universe was 7.12% for the first quarter of 2012. 
Reported by

This marked the second consecutive quarter of positive returns.  For the 12 months ending March 31, 2012, the median plan was up 4.33%.

“Building on 2011’s strong finish, all segments of the Universe posted appreciable returns for Q1, with public plans leading the way at 7.70%, followed by foundations which trailed by less than half a percent,” said John Houser, vice president and manager of performance and risk analytics for BNY Mellon. “For the 12-month period, corporate pension plans far outpaced other segments with a return of 6.01%, getting a boost from their relative overweighting of U.S. fixed-income holdings.”

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Other highlights include:

•  Nearly 99% of plans had positive results for the first quarter. For the 12-month period, 96% of plans were in the black.

•  Forty-two percent of plans matched or outperformed the custom policy return of 7.53% for the first quarter.  For the full year, 24% of plans outperformed the custom policy.

•  Public plans were the leading plan type for the first quarter with a median return of 7.70%, followed by foundations, Taft-Hartley, corporate pensions, health care and endowment plans.

•  U.S. equities were the dominant asset class for the quarter with a median return of 12.95%, vs. the Russell 3000 Index return of 12.87%.  Non-U.S. equities posted a median return of 11.97%, ahead of the Russell Developed ex-U.S. Large Cap Index result of 10.76%.  U.S. fixed income had a median return of 1.36%, vs. the Barclays Capital U.S. Aggregate Bond Index return of 0.30%.  Non-U.S. fixed income posted a median return of 3.40%, compared with the Citigroup Non-U.S. World Government Bond Index return of -0.22%. 

The average asset allocation in the BNY Mellon U.S. Master Trust Universe for the first quarter was: U.S. equity 29%, U.S. fixed income 27%, non-U.S. equity 16%, non-U.S. fixed income 2%, real estate 2%, cash 2% and alternatives/other 22%.

With a market value of $2.29 trillion and an average plan size of $3.19 billion, the BNY Mellon U.S. Master Trust Universe is a fund-level tracking service that can be used to make peer comparisons of both performance and asset-allocation results.  The Universe consists of 719 corporate, foundation, endowment, public, Taft-Hartley and health care plans.

 

 

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