The most talked about story of the last week was undoubtedly the relentless chatter about that massive $18 billion in equity fund inflows as reported by Lipper (not ICI), which tracks primarily institutional and ETF flow of funds, and which, as we explained even before the Lipper data came out, was driven exclusively by a surge in bank deposits into the year end, to be recycled for risk investment purposes by the commercial banks’ own prop desks. The details, however, were largely ignored by the mainstream media which took that inflow as an indication that the tide has finally turned and that the great rotation out of bonds into stocks is on. Turns out that just as we expected it was a year end calendar asset rebalancing. As Lipper reported earlier, the enthusiasm for US stocks appears to have abruptly ended, with a whopping $4.2 billion pumped out of domestic equities, offset by some $4.5 billion invested in non-domestic equities. The blended flow? Just $286 million going into equities. Now our math may be a little rusty, but $18 billion followed by $0.2 is not really indicative of an ongoing rotation out of bonds and into stocks, and is more indicative of a one-time, non-recurring event, just the opposite of all the Bank of America addbacks.
Sector Flow Chg % Assets Count
All Equity Funds 0.286 0.01 3,042.918 10,145
Domestic Equities -4.181 -0.19 2,255.468 7,523
Non-Domestic Equities 4.467 0.57 787.450 2,622
All Taxable Bond Funds 4.625 0.30 1,531.942 4,824
All Money Market Funds -9.603 -0.40 2,402.327 1,363
All Municipal Bond Funds 1.443 0.45 324.824 1,348
When combined, the sizeable inflows into stock mutual funds and the big outflows from stock ETFs produce a total figure of just $286 million into equity funds overall, which is sharply lower than the previous week’s total inflow of $18.32 billion, which was the most net new cash into equity funds since 2008.
The S&P 500 rose a slight 0.8 percent over the reporting period. Federal Reserve Presidents James Bullard, Charles Plosser and Charles Evans voiced their optimism about U.S. growth for 2013, while upbeat U.S. retail sales for December and strong corporate earnings for major banks JPMorgan Chase and Goldman Sachs also boosted markets.
Investors remained cautious, however, in light of Republican opposition in Congress to increase the $16.4 trillion U.S. debt ceiling. A failure to raise the government’s borrowing limit could cause the United States to default on its debt in coming months.
With regard to the $3.75 billion inflow into stock mutual funds, those that specialize in U.S. stocks attracted $1.41 billion of that sum, while mutual funds that hold international stocks attracted the remaining $2.34 billion.
The enthusiasm for stock mutual funds did not apply to stock ETFs, which suffered outflows of $3.5 billion. The outflows are the first losses for the funds in eight weeks, and mark a reversal from the previous week’s big gains of $10.78 billion. Investors turned particularly cold toward the SPDR S&P 500 ETF fund, from which they pulled $4.21 billion.
Sadly for the prepared talking points, the flows into bond funds are back.
Investors in bond funds favored higher quality and gave $2.02 billion to investment-grade corporate bond funds. The figure represents the total amount pumped into both mutual funds and ETFs that hold investment-grade bonds.
Lemieux of Lipper said that consistent inflows into investment-grade corporate bond funds show that investors are still opting for some safety.
High-yield “junk” bond funds attracted just $571 million overall, indicating the decreased appetite for risky bonds compared with the previous week, when the funds attracted $1.11 billion in new cash.
We, for one, can’t wait to see how much non discussion this latest weekly fund flow update gets on the mainstream financial media, or whether last week’s flow aberation will be locked in time and referred to by the pundits on an ongoing basis indefinitely