Lipper: Equities Carry July to Fund Inflow Valhalla

For the second month in a row, it was equities that carried the torch for the month, adding $21 billion in July, after picking up $19.5 billion in June (See  June Harvests Bumper Crop of Fund Inflows ).   The performance was definitely timely, as investors decided to take their money out of bonds and money markets that recorded outflows of $8.8 billion and $2.1 billion, respectively, according to the monthly mutual fund flow report from Lipper, Inc.

Fireworks were definitely set off among equity investors in July, which is normally dubbed a quiet summer month, as the group recorded its second largest monthly inflow – behind July 1997 – and its tenth largest overall monthly inflow in the past 60 months.   When the dust had all settled, July came out with a 0.71% of existing assets in equity funds, second only to April 2000’s 0.76%.

Leading the impressive bull charge uptown was June’s leader, US Diversified funds, gaining $10.6 billion.   Likewise, inflows were seen in:

• Mixed & Miscellaneous Equity ($5.6 billion)
• World Equity ($2.2 billion)
• S&P 500 Index ($1.7 billion).

Lipper saw reason to be confident also in the $450 million and $80 million of Real Estate and Gold Oriented funds, respectively.   While perhaps a sign of hesitation, Lipper chalked up the action to performance chasing since both types of funds scored performance gains of 5% in July, placing them among the best performing domestic equity types.   Another indication of potentially more confident attitudes by investors was the estimated inflow of $2.2 billion in World Equity funds – about three times their June net intake.

Bond Bounce

On the other side of the fence, bond funds were decidedly more anemic in July, recording an outflow of $10.9 billion after a torrid investor two-year love affair with fixed-income.   The breakup happened in abrupt fashion, as for the first time since December 2001 – and only the second time since the Fed started slashing short-term interest rates in January 2001 – bond fund flows were negative on balance.

Contributing to the fall was investors move to turn off the income shower to short- and intermediate-term debt, which had net outflows totaling $2.3 billion.   However, this was paltry compared to the rug being pulled out from under long-term bond funds, losing $6.5 billion in July.

Also doing an about-face for the month were money market funds, with a $2.1 billion outflow.   This comes only one month after recording their first monthly net inflows since November.