U.S. Mutual Funds See Net Inflows of $65B in 2011

January 17, 2012 (PLANSPONSOR.com) – Strategic Insight (SI) reports investors withdrew an estimated net $22 billion from stock and bond mutual funds in the U.S. in December. 

December marked the second consecutive month of net outflows from long-term mutual funds, following $3 billion in net outflows in November, according to Strategic Insight, an Asset International company.

As a result, long-term mutual funds saw net inflows for the full-year 2011 of just $65 billion (excluding ETFs and VA funds).

“Because many investors engage in year-end portfolio adjustments and tax-related moves, December is a difficult month from which to draw firm conclusions. However, it is clear that investor sentiment remains cautious. Although the S&P 500 rose 1% in December, fund shareholders are still suffering from volatility fatigue following the ups and downs of the second half of 2011,” said Avi Nachmany, SI’s director of research. “Portfolio rebalancing may result in reduced outflows from U.S. equity funds in January, especially if the U.S. stock market continues its 2012 rise.”

Equity mutual funds saw accelerated redemptions in December compared with November. Net outflows from U.S. equity funds went from $11 billion in November to $24 billion in December, and net outflows from international and global equity funds went from $3 billion in November to $11 billion in December. Flows to international equity funds were hurt by investors’ reduced appetite for risk, as well as the negative impact of U.S. dollar appreciation (in 2011, the average international stock fund lost 12%, while the average U.S. equity fund was about flat).

Among the few categories of equity funds to post positive flows in December, the leaders were utility funds, long/short funds and multialternative funds. “While there is a lack of enthusiasm for U.S. equity funds, investors continue to seek out solutions aimed at lessening portfolio volatility and reducing correlation,” said Nachmany.