Fund Flows Shift Dramatically This Year as Investors Embrace Risk. All Equity Funds Get $281 Billion, Biggest Inflow since 2000. Bond Funds Redeem $24 Billion, Biggest Outflow since 2000.
The Federal Reserve has been trying for almost five years to coax savers and investors into stocks by printing money to inflate the prices of assets in general and U.S. stocks in particular. The Fed finally seems to be succeeding. We are witnessing the biggest shift in fund flows since the crash of 2008.
On the one hand, investors have flocked to equities. The inflow of $281 billion into all equity mutual funds and exchange-traded funds this year through Monday, October 28 is the biggest annual inflow since the height of the technology stock bubble in 2000, when $324 billion flowed into equity funds. Breaking flows down, U.S. equity MFs and ETFs have issued $124 billion this year, the first annual inflow since 2007. Global equity MFsand ETFs have issued $157 billion this year, the fifth consecutive annual inflow.
On the other hand, bonds have fallen out of favor as yields started to back up in May and investors contemplated “tapering” by the Fed. Bond MFsand ETFs have lost $24 billion this year, the first annual outflow since an outflow of $7 billion in 2004 and the biggest annual outflow since an outflow of $50 billion in 2000.
Examining more recent flows, investors have been pumping huge sums into equities in October. Although global equity funds have only about one-third the assets of U.S. equity funds, global equity MFs and ETFs have received $24.5 billion this month, roughly equal to the inflow of $24.6 billion into U.S. equity MFsand ETFs. The global equity fund inflow is the second-highest this year, while the U.S. equity fund inflow is the third-highest this year.
The combined inflow of $49.1 billion into all equity funds this month is the fourth-highest on record. Note that three of the four largest inflows have all happened this year.
Industrials, Consumer Discretionary, and Information Technology Most Popular Sectors in Past Month. ETFs in These Sectors Issue at Least 25% of Assets Year-to-Date.
Equity sector flows were fairly subdued in the past month. The most popular sectors—Industrials, Consumer Discretionary, and Information Technology—were all higher-beta sectors, but no sector posted an inflow topping 4% of assets. The only sector that posted a significant outflow was Utilities, which redeemed 5% of assets.
Recent flows have been generally a continuation of established trends. Industrials, Consumer Discretionary, and Information Technology have all received at least 25% of assets this year. The only sectors to post outflows this year have been Consumer Staples, which has redeemed 5% of assets, and Utilities, which has redeemed 6% of assets.
New Offering Calendar Slows Down This Week. DealogicReports $2.7 Billion Scheduled for Tuesday and $1.2 Billion Scheduled for Later This Week.
New offerings hit an 11-week high of $11.1 billion in the previous week, but the “white shoes” are not likely to be as busy this week despite the ongoing melt-up in stock prices.
In addition to the $1.5 billion that priced Friday and Monday, Dealogic reports that $2.7 billion is scheduled for Tuesday—led by the $850 million Brixmor Property Group IPO and a $750 million overnight follow-on for Plum Creek Timber—and $1.2 billion is scheduled for later this week—led by the $300 million Essent Group IPO expected Wednesday and a $300 million overnight follow-on for Artisan Partners Asset Management. Unless some huge overnight deals materialize, new offerings should not exceed $7 billion this week, which would be below our upfront estimate of $9 billion.
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