In the months before the 2004 presidential election, investors are opting for safety over risk. Equity fund inflows were an estimated $11.5 billion in August, according to Lipper, as value funds once again beat growth funds and mixed equity continued to attract most of investors' money.
As a whole, equity, fixed income and money market funds took in $6.3 billion. The amount is considered modest, a word that could also describe investors' outlook right now.
Uncertainty over Iraq and the suddenly slow-moving U.S. economy also contributed to another month of moderation by investors. Fixed income funds took in a mere $2.8 billion, driven primarily by short and intermediate bond funds, which reaped $3.1 billion. Long-term bond funds, meanwhile, lost $300 million. Lipper said the bond fund inflows were not so much a case of risk management as they were a case of investors' frustration with the up-and-down stock market; when the stock market meanders and investors become confused as to where to put their money, they typically choose bonds.
While money market funds once again suffered outflows, $8 billion in the month, they suffered them at a much less severe rate compared with July, when they lost $12 billion, and August 2003, when they bled 20.8 billion.
"In line with the positive flows into bond funds, money market funds for the second month in a row saw a significant year-over-year lessening of outflows," Lipper said. "This is another example of a directionless equity market setting the tone in a sister market."
Last month, Don Cassidy, a senior research analyst at Lipper, noted that investors have been more concerned with not losing money than actually gaining it. The numbers for August seem to back that up. In fact, the company's month-end analysis shows that investors are opting for practically anything they perceive as safe.
A case in point would be natural resources funds, which had been one of the hottest sectors on the market. The last few months, though, have not been as fruitful for them. Instead, August saw investors opting for REITs, a perceived safer bet, which had another solid month of inflows, attracting $200 million.
Lipper echoed another of Cassidy's sentiments on the topic of where the money is coming from. Last month, he had said that between $10 billion and $12 billion is being dumped into equity funds through 401(k) plans each month. Considering that the total inflow into equity funds was $11.5 billion for August, Lipper surmised that the fund industry is at a virtual standstill. "This month's $11.5 billion estimate of equity flows could easily reflect investing from [401(k)s] alone, with little or no net new money from elsewhere," Lipper said.
Lipper's breakdown of equity funds showed that U.S. diversified funds attracted $5.7 billion in inflows, followed by $2 billion into world equity funds and $400 million into S&P 500 equity funds. Sector equity funds took in a mere $100 million. The mixed and miscellaneous categories totaled $3.3 billion, bringing the overall equity fund inflow total to the aforementioned $11.5 billion.
Likewise, among the various market capitalizations of diversified funds, those invested in an assortment of styles took the lion's share of money, with multi-cap funds pulling in $2.5 billion. Investors also shunned large-cap funds in favor of mid- and small-caps. Large-cap funds took in $300 million, whereas mid-cap funds drew $1.9 billion and small-caps $1.1 billion. Lipper also noted that August was the eighth consecutive money of a sideways market. As for the rest of 2004, the fund research firm expects fund flows to stay moderate.