$20 Billion Seen in Weekly Fund Outflows, Report Says

Such movement is a continuation of trends in the third quarter, when about $55 billion was taken out of conventional funds

Eight of the nine major equity fund groups tracked by EPFR Global posted outflows during the week ending Oct. 5, the research group said Friday, as did six of the seven major fixed-income fund groups and five of the nine major sector fund groups that include ETFs.

Overall, equity funds recorded collective net redemptions of $11.57 billion, their third worst weekly tally year-to-date, while bond and money-market funds posted outflows of $2.65 billion and $5.84 billion respectively. Such movement is a continuation of third-quarter trends.

Lipper said that its preliminary fund-flows numbers indicate that equity mutual fund investors were net redeemers of equity-fund assets in the third quarter, taking out about $55.4 billion from the conventional funds business (excluding ETFs), the group reported Sept. 30. Plus, despite the recent flight to safety, they purchased only $1.3 billion of taxable fixed-income funds during the period while redeeming $0.7 billion from the muni-bond fund group $69.4 billion from money-market funds.

“The equity funds universe has suffered five consecutive months of downside performance in 2011, with each follow-on month posting progressively worsening returns,” Tom Roseen, head of research for Lipper, explained in a report. July’s returns were -2.05%, followed by -7.04% in August and -9.72% in September decline. “All in all, it was a quarter we will gladly put behind us,” the analyst noted.

For the quarter, the mixed-equity funds macro-group moved down -10.08%; the category includes mainly lifecycle funds, such as target-date and target-allocation funds with a mix of stocks and bonds. Through the end of August, this macro-group attracted the largest amount of positive net flows in the equity-fund universe—some $63.5 billion of the $80.6 billion of net inflows, according to Lipper. (World-equity funds had $36.4 billion of net inflows in the same timeframe.)

Quarterly returns for mixed-equity funds ranged from -2.86% for absolute-return funds to -15.94% for target 2045 funds.

In the third quarter of 2011, equity funds posted declining results for the second quarter in a row and dropped -17.44%, Lipper says, with world-equity funds (-20.44%) trailing three other broad Lipper categories: mixed-equity funds (-10.08%), U.S. diversified-equity funds (-16.67%) and sector-equity Funds (-15.36%). The Dow Jones Industrial Average moved down -11.49% in the period, as the Nasdaq fell -12.91% and the S&P 500 -13.87 percent (as measured on a daily basis with reinvestments).

“Sovereign debt concerns, slowing global growth and a weakening U.S. dollar pushed some old favorites to the bottom of the pack,” said Roseen in his third-quarter analysis.

Funds focused on China dropped -25.59%, while Latin American funds fell -25.36%. For the second consecutive quarter, according to Lipper, large-cap funds “mitigated losses better than the other capitalization groups;” they moved down -15.41% vs. small-cap funds decline of -21.75%.

On the plus side, dedicated short-bias funds improved +29.82%, while commodities-specialty Funds ticked up +1.17%. They produced the only positive returns among Lipper’s equity fund groups.

“Continued sovereign debt concerns of EU member nations, slowing global growth, and U.S. partisan gridlock on Capitol Hill set the stage for the worst quarter for equity funds since fourth quarter 2008,” explained Roseen. Year-to-date returns for equity funds were -13.57% for the first nine months of the year.

“Despite plenty of liquidity in the market and forecasts for a relatively strong third-quarter earnings reporting season—according to Thomson Reuters’ Proprietary Research group, the estimated earnings growth rate for the S&P 500 for Q3 was 13.7%—investors remained pensive about the lack of sound leadership from governing bodies and a spate of downgrades by rating agencies, including that of U.S. sovereign debt,” the analyst added.

In terms of the markets’ wild swings in September, the CBOE’s Market Volatility Index (or VIX) hit 42.96 in September, just below its one-year high of 48.00 on August 8, 2011.” At the beginning of September, we witnessed six consecutive days of triple-digit moves by the Dow Jones Industrial Average as investors weighed on-again/off-again news of Greece’s debt crisis, the rising dollar, large proposed cuts of Bank of America’s workforce, and a flat August nonfarm payroll report,” Roseen concluded.

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