June 17, 2012

Mid-June Fund Flows Up After Weak May

Investors moved into the U.S. and out of Europe in mid-June, reports EPFR Global, though U.S. investors put way less into funds in May, according to Morningstar

EPFR Global-tracked equity funds took in $10.91 billion for the week ending June 13, the research firm said Friday. This was a 62-week high, and U.S. equity funds accounted for more than three-quarters of these flows; bond funds absorbed a net $1.46 billion. Also, global-equity funds recorded their third consecutive week of inflows in mid-June.

Also on Friday, Morningstar reported that long-term mutual fund inflows in the United States declined about $10 billion in May from their April level, mainly on dropping investments in taxable-bond flows.

As Spain’s sovereign ratings fell on news they needed about $120 billion in recapitalization, Europe-focused funds were abandoned during the week ending June 13, according to EPFR Global: Europe bond funds experienced their biggest weekly redemptions since early December, while Europe equity funds posted outflows for the tenth time in the past 12 weeks, as investors again looked to the U.S. and to tangible assets such as gold, the Boston-based research firm said Friday about global fund flows.

Also, Money-market had net redemptions of $11 billion, “as outflows from U.S. money-market funds more than offset commitments to their European counterparts,” according to the research group.

Emerging Markets

Some investors, though, interpreted the alarming data from Europe and weakness in China and the U.S. as setting the stage for more monetary easing, which could breathe fresh life into risk assets. Accordingly, they moved money into emerging-market bond, high-yield bond and emerging-markets equity funds.

Global emerging-markets equity funds took in over $1.2 billion during the second week of June, its biggest inflow since the first week of March. Latin American-equity funds took in inflows, while EMEA and Asia ex-Japan equity funds recorded outflows.

Concerns of China’s economy, though, prompted investors to put out a 25-week-high $404 million from China equity funds, though India equity funds had their best week since mid-February as cheap valuations and a weak rupee attracted foreign investors, reports EPFR Global.

Other Weekly Flows

Over $1 billion flowed into Japanese ETFs. Flows into U.S. equity funds were dominated by a few large-cap ETFs, though some actively managed small-cap growth and blend, mid-cap growth, blend and value, as well as large-cap growth funds absorbed fresh investments during the week.

During the week ending June 13, EPFR Global-tracked commodities, consumer goods, energy, industrials, real estate and financial-sector funds recorded inflows ranging from $219 million to $676 million. Gold and precious-metals funds absorbed a net $747 million, for instance.

Just three of the 11 major sector-fund groups posted outflows technology, health care/biotech and infrastructure-sector funds.

Bond Fund Flows

Flows into EPFR Global-tracked bond funds were well off their yearly average for the third week in a row, says the research group. But U.S. bond funds had more than $2 billion of inflows, while funds with significant European exposure struggled and experienced about $1 billion in outflows – a 27-week high.

Mortgage-backed bond funds had their third-best week this year, and high-yield bond funds posted inflows for the first time in four weeks. Also, emerging-market bond funds benefited from the hope of a possible QE3 program and broke their three-week outflow streak with solid flows into funds with hard-currency mandates.

‘Went Away in May’

Long-term mutual fund inflows in the United States fell to $14.1 billion in May, down from $24.1 billion in April -- the smallest level of inflows year to date, according to Morningstar. Taxable-bond funds showed the greatest decline from inflows, as they dropped to $7.7 billion in May from $16.9 billion in April.  

“The two most popular categories, intermediate-term bond and high-yield bond, saw significant drops in demand,” wrote author Kevin McDevitt in the report on May US. Fund flows.

Inflows into money market funds were $1.4 billion.

U.S.-stock funds had their 13th consecutive month of outflows – receding $4.7 billion in May vs. $9.3 billion in April. Municipal-bond inflows doubled from April's $2.4 billion to about $5 billion, led by $1.3 billion into high-yield muni funds, Morningstar says.

Equity-Income Funds

“Actively managed stock funds—both U.S. and international—have been through the ringer in recent years, enduring more than

$172.3 billion in outflows over the past 12 months alone,” McDevitt and his colleagues said in the report. “Meanwhile, passively managed stock funds have fared much better, collecting $47 billion during that time.”

Dividend-focused funds, however, have seen $21.7 billion in inflows over the past 12 months. (Equity income ETFs, for instance, added $6.2 billion.)

Funds such as BlackRock Equity Dividend and Vanguard DividendGrowth have led the way, according to Morningstar, and account for nearly half of the group's total intake over the past year.

High-Yield Flows

After five straight months of strong inflows, open-end high-yield bond funds saw net outflows of $1.2 billion in May as prices fell, reports Morningstar analyst Miriam Sjoblom.  

“May's high-yield outflows fit a broader pattern that has emerged in recent years. Since 2009, an overarching trend of yield-hungry investors piling into junk-bond funds has been punctuated with bouts of indigestion characterized by brief bursts of outflows and flagging bond prices,” the analyst said in her May report.

MFS moved up the league tables in May, thanks largely to a $1.3 billion inflow into MFS Value. (Sibling MFS Emerging Markets Debt also took in a notable $450 million.)

Vanguard's index funds continued to dominate inflows, the Morningstar research shows, with the fund family taking in an estimated $8.1 billion. DoubleLine Total Return's inflows have slowed slightly in recent months, but the fund still collected $1.7 billion in May.

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