After peaking in Q1, retail investment in equity instruments courtesy of ongoing disenchanment with performance continues and as Lipper reports, "for the third week in a row equity fund investors were net redeemers from their accounts, taking out approximately $5.6 billion for the week ended May 25, 2011. The three-week total now stands at -$12.7 billion, the worst figure for this group since August 2010." This follows the latest ICI weekly report which saw a 4th consecutive outflow from domestic equity mutual funds. Which llikely means that as margin account cash continues to drop, margin debt has to offset it. As we disclosed recently, April margin debt grew to a fresh multi year high. Expect this number to grow even more in May, then June, and so forth until the levered beta chase ends in tears. More observations on what Goldman dubs "declining risk apetite" below.
Equity outflows extend; bond, MMFs inflow
As per Lipper FMI data, equity funds saw -$1.8 bn in outflows this week, the fifth consecutive week of outflows. This week saw outflows in both US and non-US funds, of -$0.6 bn and -$1.1 bn, respectively. This compares to -$25 mn last week (-$1.5 bn in domestic funds, offsetting inflows in non-US funds), as per ICI. Total bond inflows were +$2.6 bn (+$2.9 bn in taxable, offsetting -$315 mn in muni bond outflows), versus +6.5 bn last week, (+$6.4 bn in taxable, +$63 mn in munis). Extended outflows in equity funds is indicating a shift in risk appetite and perhaps fading seasonal benefits. MMFs inflowed +$9.6 bn for the current week compared to -$12.4 bn last week.
Equity ETFs outflow, bond ETFs inflow
Equity ETFs (ex-commodities) continued to outflow with -$4.1 bn, versus -$7.4 bn last week. Commodity ETFs saw inflows +$286 mn for the current week, compared to outflows of -$218 mn last week. Inflows into bond ETF remained steady with +$871mn (+$852 mn in taxable bonds; +$19 mn in munis) versus +$973 mn last week.
Equity and fixed income fund performance
Softer equity market performance is driving the average 2Q-to-date asset-weighted equity fund performance for the group to -0.8% versus the S&P 500’s -0.4%. CNS continues to rank at the top with +2.9%, followed by IVZ with +0.8%. Average fixed income performance for the group is +1.5%, while the Barclays Aggregate Bond Index is +1.9% 2QTD. IVZ and LM lead with +2.9% and +2.2%, respectively, in FI performance.
2Q flow trend reflects declining risk appetite
Two-thirds of the way through 2Q11, flow trends so far reflect declining risk appetite, with a positive momentum in fixed income flows, at +$31 bn for 2Q to date versus +$17.3 bn in 1Q, and the best since 3Q10, driven by improved taxable bond flows, and slowing muni outflows. Equity funds on the other hand, are tracking lower qoq (+$0.5 bn, versus +$34.7 bn 1Q), led by outflows in US equity funds. ETFs emulate trends in the MF space, with a positive run-rate for bond ETF flows, while equity ETF flows track below 1Q levels.
And the latest complete Lipper data:
- For the third week in a row equity fund investors were net redeemers from their accounts, taking out approximately $5.6 billion for the week ended May 25, 2011. The three-week total now stands at -$12.7 billion, the worst figure for this group since August 2010.
- Taxable bond funds scarcely missed a beat as they accumulated another $3.8 billion this week despite a slowdown in corporate debt issuance that may squeeze good new opportunities ahead.
- The year’s belle of the ball, Loan Participation Funds, saw their inflows slow to less than $500 million as the market for bank loan funds softened for the third week.
- Municipal debt funds had outflows of about $300 million, an uptick from the previous week, but still better than its four-week moving average.
- The High Yield Muni category had inflows for the third week in a row as investors have eyed its nice yields and supportive market tone.
- Money market funds took in $10.7 billion as institutions added $11.3 billion and retail investors withdrew $600 million (to finance Memorial Day weekend activities?).