10
Investors are showing a lot more enthusiasm of late.
In January
2013
, we saw the greatest month of
inflows on record. All told, we saw $
115
billion in
inflows to exchange-traded funds and open-end
mutual funds. Open-end alone accounted for $
86
billion as all asset classes were well into
positive flows.
Some called this the great rotation, but it really looks
more like a great influx. Investors aren’t selling
bond funds to buy stock funds. Far from it. Interme-
diate-bond funds remain the most popular open-end
category with $
10
billion in inflows. U.S. equities
remain toward the back of the long-term asset class
pack, however they did receive $
15
.
5
billion in
inflows—their best month since February
2004
.
The closest thing there is to a source of this new
money is money market funds, where flows were
slightly negative for January. They had received $
77
billion in inflows in December. That amount didn’t
leave, but clearly investors were directing all of their
new money elsewhere. With yields near zero, money
market funds aren’t going to have a lot of appeal,
except as a safe haven and a place to park money
you may need in the coming year.
While the scale is unprecedented, we’ve seen U.S.
equities garner flows in past Januaries, only to
see enthusiasm wane. Worries about the fiscal cliff
may have kept investors on the sidelines until the
New Year’s Day deal was struck, and it’s possible
that flows will tail off dramatically the way they
have before.
I’d also caution against reading this as a bullish
signal for U.S. equities. Mutual funds are just one
slice of the players in the U.S. equity market, and
historically flows have not signaled where the market
was headed. In fact,
2000
was the biggest year for
flows, and that was the start of a brutal bear market.
Conversely,
2003
and
2009
were big redemption
years, even though they were the beginnings of
multiyear rallies.
Still, there are some interesting details to be gleaned
here. For example, American Funds received net
inflows to the tune of $
1
.
7
billion. American had been
beset by
42
consecutive months of outflows as
some investors were disappointed by its performance
in
2008
.
Americans’ love affair with emerging markets is
gaining steam. The diversified emerging-markets cat-
egory received its largest inflows ever with $
5
.
9
billion into open-end funds and $
6
billion into
ETF
s. In
fact, one of the biggest emerging-markets funds in
the world,
Aberdeen Emerging Markets
ABEMX
,
announced that it is closing to new investors. The
fund has more than $
10
billion in the U.S., and Aber-
deen runs more than $
50
billion in emerging
markets worldwide.
It will be worth watching to see whether more fund
closings are on the way. We’ve also seen Fairholme
Funds close all three of its funds to new investors, as
well as the closings of
Fidelity Small Cap Dis-
covery
FSCRX
and
Fidelity Small Cap Value
FCPVX
.
Early Signs in February
We don’t get a month’s final flow data until about a
week after we publish
FundInvestor.
However,
the early indicators are that flows in February are
reverting to the norm of recent years.
So far in February, U.S. equity funds have slipped back
to redemptions, while foreign equities and taxable
bonds continue to be positive, albeit at a slower pace.
If the final data confirms these trends, it will throw
more cold water on this great rotation theory, meaning
that we just had a lot of pent-up demand due to
unusual year-end circumstances.
See Income Strategist (Page
20
) for what the flow
data means for bond funds.
œ
What Great Rotation?!
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to find
overlooked funds that may be
ready to rally.
