February 5, 2013

January Fund Flows Show Exuberant Investors: Strategic Insight, TrimTabs

Also, net inflows to bond funds were estimated to exceed $40 billion in January

An all-time record $77.4 billion flowed into U.S.-listed equity mutual funds and exchange-traded funds in January, according to TrimTabs Investment Research.

Also in January, net inflows to bond funds were estimated to exceed $40 billion, significantly above 2012’s average monthly flows to bond funds of $27 billion, according to Strategic Insight, based on data provided by the Investment Company Institute and proprietary surveys of leading distributors and fund managers.

Strategic Insight said that it projects bond fund inflows to persist in the coming months, as investors holding $10 trillion of cash slowly search for income opportunities elsewhere.

Strategic Insight, a business intelligence provider the fund industry, reports that approximately $51 billion, or more than half, of the January net flows went into stock and balanced mutual funds, marking the largest monthly amount in more than a decade. Additional net inflows went to stock ETFs, the company said. These figures, the company said, suggest that U.S. investors are finally re-entering the stock market through mutual funds.

“In recent years, stock investors watched the rising stock market with either disbelief or regret. January flows data suggests that postelection assurance of political stability and tax rates combined with rising home prices, falling unemployment and fading memories of 2008 have helped investors overcome, at least for now, a state of investment anxiety,” said Avi Nachmany, SI’s director of research, in a statement.

Nachmany added that “as economic life across America slowly improves, investment in stock funds will increase too.” More than “80% of all stock fund balances are dedicated to retirement savings, thus having accumulation and withdrawal time-horizons of 20, 30, or 40 years for many investors. As Americans become more confident about the future, investing for retirement through stock mutual funds will expand,” he said.

David Santschi, CEO of TrimTabs, noted in a statement that “Investors kicked off the New Year in a highly exuberant mood. The inflow in January smashed the previous record of $53.7 billion in February 2000, which was just before the technology stock bubble burst.”

In a research note to clients, TrimTabs explained that $39.3 billion flowed into U.S. equity mutual funds and ETFs, while $38.1 billion flowed into global equity mutual funds and ETFs. “Both of these inflows were the highest on record,” TrimTabs said. “The previous record for U.S. equity funds was $34.6 billion in February 2000, while the previous record for global equity funds was $27.1 billion in January 2006.”

These record inflows “should make contrarians very nervous,” said Santschi. “Big inflows from fund investors have historically coincided with market tops. Note that four of the top ten biggest inflows were in early 2000.”

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