Fund tracker Lipper reports that flows into popular exchange-traded funds exceeded net flows to domestic equity funds on a monthly basis for the first time ever. ETF inflows were between $3.0 billion and $4.0 billion for the month, whereas flows into domestic equity funds were negative $2.8 billion.
Mixed equity fund net flows were relatively unchanged, at $5.2 billion, and the message was much the same for other equity categories, such as income, flexible and specialty diversified equities, which witnessed net flows of $2.1 billion. Bond funds saw inflows in January of $4.3 billion, which is $2 billion better than December, while money market funds drained $21.3 billion. That's $15.8 billion worse than December.
Overall, funds of all classification types lost $12.5 billion during the month. "January rather vividly indicated, hardly for a first time, how sensitive equity-funds flows are to sort-term economic and market performance conditions," said Don Cassidy, a senior research analyst at Lipper in Denver.
"At about $4.5 billion, overall net inflows into equity funds only slightly exceeded those in ETFs for the month. While admittedly much of January was a rough working laboratory in terms of performance, this comparison should be a bit sobering to management and marketers in the conventional fund business," Cassidy said.
January is traditionally a month that enjoys a happy surge in activity because of New Year resolutions, bonuses, annual reviews of investment performance, pension contributions and other factors, noted Lipper Senior Research Analyst Andrew Clark. Clark thinks that still did occur, just not the typical $15 billion to $40 billion inflow the industry has grown to expect. He cites declining trading volume on the major stock markets, the NYSE in particular; five consecutive months of retail sales increases, a sign that consumers would rather spend than save; and bear fund flows that increased in January, a factor that often indicates a change in sentiment.
"We do not think this prefigures a bad year ahead for stock flows but, rather, is a reflection of the general unease the U.S. stock market felt during January, compounded by a greater propensity to consume versus save," Clark said.