Fund Cash Flows Still Positive Despite Volatility

March 12, 2009 ( - U.S. investors started off 2009 continuing their contributions to mutual funds—particularly into money-market funds, according to Strategic Insight.

In January and February combined, investors put a net $44 billion into open-end mutual funds, according to preliminary estimates by the company.

Much of those net inflows can be attributed to money-market funds, which enjoyed roughly $30 billion of net inflows over the first two months, according to a press release from Strategic Insight. The firm said the demand for money funds underscores the importance of these vehicles to investors: Many investors have their first mutual fund experience via the relatively safe income from money-market funds. 

Bond funds also saw net inflows in both January and February. Bond mutual funds drew net inflows of about $30 billion, according to Strategic Insight. Investors went for higher yield by putting more money into taxable fixed-income funds than into tax-free funds.

In the first two months of the year, equity mutual funds saw net outflows of a little more than $16 billion. Although net inflows to equity funds in January turned to net outflows in February, even this trend represents minimal redemption activity from stock funds considering the low confidence in the economy and markets being experienced, the firm said. The redemptions in February were equivalent to less than half of 1% of equity fund assets (a lower proportion than experienced in past bear markets).

Strategic Insight said the steadiness reflects investors’ faith in stock funds in their retirement plans, which have seen little in the way of defensive switching out of equities.

“These results underline the resilience of the mutual fund business, which continues to be a source of relative stability in the financial world,” commented Avi Nachmany, Strategic Insight’s director of research. “The majority of mutual fund shareholders invest for the long term, and such a long-term horizon can be especially beneficial today, during tumultuous times when investors may be tempted by counterproductive emotional reactions.”

ETF Outflows

Separately, Strategic Insight reported that US exchange-traded funds (ETFs) (including exchange-traded notes) saw net outflows of $7 billion in the January-February timeframe. Although fixed-income ETFs saw net inflows during the first two months of the year, they were more than offset by net outflows from equity ETFs, according to the press release.

“This was not surprising. After record flows into ETFs in 2008, some pullback and rebalancing of portfolios was to be expected at the start of the year,” said Loren Fox, senior research analyst at Strategic Insight, in the release.”The demand for fixed-income products shows that a broadening array of ETFs is becoming integral parts of mainstream portfolios.”

The cash flow results are from Strategic Insight’s Simfund databases. The ETF data are from the Strategic Insight report

Ellie Behling