Even with the market declines of February 27 and the resulting swings, more than 90 percent of all equity funds posted positive returns, according to Lipper. The average equity fund, in fact, had returns of 2.41 percent, beating the major indexes, says Tom Roseen, a senior research analyst with Lipper in Denver (see chart).
Nonetheless, fund flows tracked by Cambridge, Mass.-based Emerging Portfolio Fund Research, show that global fund investors have been holding back. They put nearly $25 billion into the 15,000 funds in EPFR’s database during the first three months of 2007. But that’s down roughly 60 percent from the close to $60 billion invested in the first quarter of 2006 (see chart).
“Groups with strong inflows include global equity funds with $14.9 billion through March 30,” says Brad Durham, managing director of EPFR. “Funds that are invested across a lot of different regions … are still racking in new money and have for more than two years. There’s a consistent shift in allocation from the United States and some other developed markets into these areas.”
In 2006, some $120 billion of net flows went into global equity and emerging-market funds, Durham adds. As for U.S. equity funds, they experienced $16 billion in net outflows last year, while this year’s inflows stand at $2 billion.”
Given the market’s recent volatility, some investment experts have been predicting that growth investing would return to favor. As the Lipper data shows, growth funds in and outside the United States outperformed their value counterparts in the first quarter of 2007.
Still, Durham doesn’t expect investors to pour their resources into the growth sector. “This is largely exaggerated,” he says. “Our data do not show that turn of events for growth funds. Value funds across all market-cap groups have been seeing the most net inflows, and that’s been the trend for a few years.” Nonetheless, this trend is worth watching, Durham concedes.
Balanced funds, he notes, are having a strong year so far after seeing persistent outflows in 2006, which totaled $4 billion. This year, the balanced funds have inflows of $2.2 billion. “The flows are more cautious as some investors move to the sidelines,” says the EPFR executive.