U.S. Equity Funds See Net Outflows For Second Month

This marked a decline from March, when investors put net $32 billion in flows into long-term funds, according to Strategic Insight (SI), an Asset International company.

In April, domestic equity funds saw net outflows of nearly $6 billion during a month of lackluster demand for U.S. stocks: the benchmark S&P 500 Index generated a total return of -0.6% in April amid trading volumes that were down more than 8% from the trailing 12-month average. That brought total U.S. equity fund flows to -$6 billion for the first four months of 2012—a sharp reversal from the first four months of 2011, when U.S. equity funds enjoyed cumulative net inflows of $41.9 billion.

International and global equity funds offered some relief, drawing net inflows of $10.4 billion in April—the best month for such mutual funds since March 2011. In the first four months of 2012, international equity funds drew aggregate net inflows of $26.5 billion.

“Investors remain in a holding pattern, as economic growth rates declined or turned negative in a number of key markets,” said Avi Nachmany, SI’s director of research. “The fragile state of investor confidence will benefit bond fund inflows in the near future as investors stay centered on income strategies.”

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Taxable bond funds saw net inflows of $21 billion in April, as investors continued to use bond funds as income-producing alternatives to money market funds, CDs and bank deposit accounts. Highlighting fund shareholders’ low appetite for risk, low-volatility bond funds took by far the largest portion of bond fund flows in April. Taxable government-backed bond funds saw very small net inflows. Taxable bond funds have drawn an estimated $104 billion in the first four months of 2012, far ahead of the $59 billion in net flows that taxable bond funds took in over the course of the same period a year ago.

Meanwhile, muni bond funds saw net inflows of $0.6 billion in April. Muni bond funds drew $17 billion in net inflows through the first four months of the year, as long-term muni bond issuance has risen substantially from year-earlier levels.

Money market funds saw net outflows of $22 billion in April, which was an improvement over March’s net outflows of $69 billion. Ultra-low yields continued to hamper demand for money market funds. 

Separately, SI said U.S. exchange-traded funds (ETFs) saw roughly $3 billion in net inflows in April 2012. That brought total ETF net inflows to $58 billion for the first four months of 2012—a pace that could result in the sixth straight year of $100 billion or more in annual net inflows to ETFs.

Bond ETFs were the only major category to post net inflows in April, drawing net $5 billion. Equity ETFs saw an estimated $2.5 billion in net outflows, with both domestic and international equity products seeing net redemptions.

At the end of April 2012, ETF assets (including exchange-traded notes) stood at $1.204 trillion, up from $1.06 trillion at the end of December.