During 2012, one of the significant themes in the U.S. and global equity markets was the shifting of mutual fund investors out of equity funds and into taxable and municipal bond funds.
As reported by the Investment Company Institute, or ICI, equity mutual funds saw negative average monthly outflows in excess of $12 billion per month in 2012.
The majority of these mutual fund outflows came from U.S. domestic equity funds. Overall in 2012, equity mutual funds focused on investments outside the U.S. were essentially neutral. Flows into these non-U.S. equity mutual funds were generally positive each month for the first half of 2012 and were generally negative for the latter half of the year.
On average during 2012, mutual fund investors moved more than $25 billion per month into various fixed-income mutual funds. The majority of the investments into bond funds went to mutual funds investing in taxable fixed-income securities and averaged in excess of $21 billion per month in 2012. Mutual funds investing primarily in municipal bonds saw an average of $4 billion per month in net positive inflows in 2012.
Mutual fund investors poured an average of $16 billion per month into all these funds in 2012. The only months during which negative net flows from all mutual funds were reported were November and December. These negative flows may have been the result of capital gain harvesting before the increased tax rates came into play in 2013, concerns about the economic health of certain European nations and the ongoing fears of the fiscal cliff.
Weekly flow of funds information from ICI indicates, on average, investors have returned in 2013. Although the first reporting period, which ended Jan. 2, showed negative flows, this was likely a continuation of the trends reported at the end of 2012. For the next three weeks in January reported thus far, flows of investments have been positive into both equity and bond mutual funds.
While it is still very early in 2013 and numerous factors remain which will influence investor views of risk and return, investors are voting with their investable funds. Inflows into mutual funds, which typically reflect the actions of retail investors, are fairly robust. Significant positive flows to mutual funds should have marginally positive effects on the markets in which they invest.
Kirby Brown is the CEO of Beneficial Financial Group in Salt Lake City.