Each month, the Investment Company Institute releases a series of figures reporting the flow of funds into and out of stock mutual funds, bond funds and money market funds. The last report, dated Nov. 26, 2013, indicated an increase of 2.3 percent in overall mutual fund assets for the month of October.
One of the overall trends observed in October was the flow of investment capital into longer term and generally riskier mutual funds. For the most part, the money flowed out of short-term, relatively stable, lower return-oriented money market funds and into stock, bond and other longer-term-oriented funds. The net inflow into these longer-term funds in October totaled $10.7 billion. In the previous month, these longer-term funds had experienced a net outflow of capital totaling $4.9 billion.
Stock mutual funds reported the highest percentage net increase in investment capital during the month of October with a positive net change of 4 percent, which equals more than $21 billion. The same figure reported for stock mutual funds for September was a relatively small net increase of $2.6 billion.
During the month of October, money market mutual funds reported net outflows totaling more than $12 billion. In comparison, money market mutual funds reported net inflows totaling almost $46 billion in September. The Investment Company Institute reports that of the outflows reported in money market funds in October, more than $10 billion exited from money market funds targeted primarily at individual investors.
Mutual funds with bond orientations have also reported net outflows in the last several months. Net outflows totaling approximately $11.6 billion and $15.6 billion were reported for the months of September and October, respectively.
Tracking the flow of money into and out of mutual funds can provide some interesting insight about the behavior of individual and institutional investors. While data gathered in any one month doesn’t always reveal a significant trend, observing these trends can prove helpful over time.
Chasing historic performance is not always a profitable, long-term investment philosophy. Correctly anticipating how significant flows of investment capital and changes in asset allocations will affect the capital markets can be meaningful inputs in formulating an investment strategy.
Kirby Brown is the CEO of Beneficial Financial Group, based in Salt Lake City.