The Markets December 14, 2011

Mutual Funds See $6B Net Outflow in November

November was another "risk-off" month for mutual fund investors with $6.3 billion in long-term outflows, according to data from Morningstar.
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With one month left in 2011, long-term inflows for the year-to-date are down 70% from 2010’s $244 billion for the full year. U.S.-stock funds once again did most of the damage with $12.5 billion in outflows, even though the S&P 500 Index was flat for the month. International-stock funds fared even worse in relative terms with $4.3 billion in outflows, the asset class’ worst showing since May 2010.   

Investors instead turned to the perceived safety of bond funds, shoveling $10.2 billion into taxable-bond offerings. They also contributed nearly $3.1 billion to municipal-bond funds, as that group’s steady recovery continued. Municipal-bond funds had their highest inflows since August 2010. Money market funds provided another haven, as they collected $46.1 billion in new money, one of their greatest hauls in three years.  

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Among taxable-bond funds, unlike earlier in the year when investors seemed to gravitate toward credit-oriented categories in search of yield, conservatism carried the day in November. The intermediate-term bond category, in which many core bond holdings are found, collected $8.5 billion in new assets.   

Although no category came close to the intermediate-term bond haul, conservative-bond categories dominated the top-10 ranking. Intermediate-term bond was followed by inflation-protected bond, muni-national intermediate, short-term bond and the conservative-allocation category.   

Municipal-bond funds had their best month overall since August 2010. The asset class has been increasing in popularity since it bottomed in December last year.  

The complete report from Morningstar is available at http://www.global.morningstar.com/novflows11.  

The Markets December 14, 2011

Investment Managers Plan to Stay the Course in 2012

Seventy percent of investment managers expect a similar level of volatility as in 2011 to continue through 2012.
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According to the latest Investment Manager Outlook (IMO) survey conducted by Russell Investments, of those 70%, 63% say that despite these expectations they are not planning any changes to their portfolio positioning. Managers that feel volatility will be tempered in 2012 are in the minority at 30%, and reasons cited include expectations for successful resolution of issues in Europe and other macroeconomic uncertainties.  

In the latest survey, nearly half of managers (49%) indicated they believe the market to be currently undervalued and 45% see it as fairly valued.  

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Likely echoing concerns around continued volatility in Europe, bullishness for non-U.S. developed market equities saw a 12 percentage point decrease from the September 2011 iteration of the IMO survey to 33% – the lowest point since March 2009.  

U.S. large cap growth equities (58% bullishness) and emerging market equities (56% bullishness) saw major drops in manager bullishness, 15 and 18 percentage points respectively, compared to the September 2011 survey. At 61% bullishness, U.S. large cap value equities led in terms of manager bullish sentiment, and other value equities saw notable increases – with U.S. midcap value (51% bullishness) and U.S. small cap value equities (45% bullishness) increasing 13 and 10 percentage points respectively from September 2011.  

High-yield bonds (50% bullishness) and corporate bonds (41% bullishness) also saw considerable gains in manager bullishness in the latest survey, up 12 and 8 percentage points respectively since September 2011.  

At 73% bullishness, the technology sector continues its long-standing run as the most-favored sector amongst managers surveyed for the IMO, up two percentage points from September 2011.  

The consumer discretionary sector saw the largest gain in bullishness, rising nine percentage points to 50% bullishness. Most other sectors saw minor drops in bullish sentiment, including healthcare (down seven percentage points to 47% bullishness) and financial services (down seven percentage points to 31% bullishness).  

More information about Russell's Investment Manager Outlook is available here.

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