According to SI, an Asset International company, January results marked a turnaround from December, when investors withdrew net $24 billion from long-term funds.
The results for January were the best net inflows for long-term mutual funds since April 2010, when stock and bond funds (excluding ETFs and VA funds) enjoyed $44 billion in total net inflows. The mix of inflows in April 2010 was $21 billion to equity and $23 billion to bond, a different mix than last month.
In January 2012, domestic equity funds saw flat net flows, during a month when the S&P 500 index had a 4.5% return and the average U.S. equity fund gained 5.2% on an asset-weighted basis. It was the first time since April 2011 that domestic equity funds didn’t experience net outflows. Illustrating investors’ caution, the leading categories of U.S. equity funds in January were equity income funds, with $4 billion of net inflows.
Meanwhile, international and global equity funds saw net inflows of $3 billion, as January saw emerging markets equity funds take in $3 billion and global asset allocation funds take in $2.6 billion, after each category had net outflows of nearly $1 billion in December.
“Despite the upturn in the U.S. stock market, most equity investors are still on the sidelines due to uncertainty. A robust increase in optimism and risk appetite would have translated into substantial net inflows to U.S. equity funds, similar to the $21 billion in net inflows to domestic equity funds we saw in January 2011. What we saw this January was the effect of new-year portfolio rebalancing coupled with an easing of the ‘volatility fatigue’ that has affected investors since the summer,” said Avi Nachmany, SI’s director of research. “January’s flows may be something to build on if we see continued recovery in the economy and stock market.”
Taxable bond funds saw net inflows of $26 billion in January, as investors continued to use bond funds as income-producing alternatives to money market funds, CDs and bank deposit accounts. Leading the way were general corporate bond funds ($7 billion in net inflows) and corporate high-yield bond funds ($6 billion). Muni bond funds enjoyed net inflows of $6 billion, as fears of widespread municipal defaults continued to fade.
Money-market funds saw net outflows of $44 billion in January, as ultra-low yields hampered demand; investors no longer treated money market funds with the “safe haven” status that had resulted in December net inflows of $37 billion.