Fund Flows Decline Along with Market
April 2, 2001
Net inflows into mutual funds dropped dramatically in February to $3.95 billion, down from $29.5 billion in January, according to Financial Research Corp. of Boston. That drop is reflective of the declining market and is not at all surprising, according to Avi Nachmany, director of research at Strategic Insight of New York.
"In January, the Nasdaq was up, the stock market was up significantly and people were saying, Ok, we're coming back,'" said Nachmany. "So flows in January were not only seasonal flows, but also because of the market. But then the market went down in February."
Flows for March are likely to be worse than February due to the continuing decline in the market, said Nachmany. But, the numbers could have been much worse for February, he said.
"One or two dollars out of every $1000 in equity funds are being pulled out," he said. "I think it's very reassuring that investors didn't pull more out during these extraordinary and extreme financial times."
Value funds saw net inflows of $7.2 billion in February, bringing year-to-date flows to $12.8 billion in the category, according to Financial Research Corp. All three value categories, large-, mid- and small-cap had positive flows for the second consecutive month, which is of particular significance because of their redemptions over the past two years, according to FRC. During 1999 and 2000, value funds experienced net redemptions of $89 billion. The flows into value funds are due, in part, to good value fund performance recently and a shift towards value investments by investors, said Nachmany.
Conversely, large growth and technology funds, which did well last year in terms of inflows, experienced net redemptions of $3.8 billion and $1.9 billion, respectively, according to FRC.
Flows into high yield bond funds slowed to $1.22 billion in February, according to FRC. Junk bonds had huge inflows in January totaling over $4 billion.
The Vanguard Group of Malvern, Pa. led all firms with net flows of $2.68 billion in February, according to FRC. They lead all firms for the year with a little over $6 billion so far. Fidelity Investments of Boston, which is second in year-to-date flows, had only $168 million in net flows in February, making it number 20 in flows for the month. In January, Fidelity was number one with $3.7 billion in flows and Vanguard was second, with $3.3. billion.
American Funds of Los Angeles was second in February with just under $1.3 billion, according to FRC.
Exchange-traded fund assets were also adversely affected by the declining market in February. Exchange-traded fund assets decreased $7.82 billion, over 10 percent, last month, leaving total assets of $64.31 billion, according to the Investment Company Institute of Washington, D.C.
The decrease reflects, specifically, the overall decline in domestic stock values, according to the Investment Company Institute. Domestic exchange-traded funds account for 57 of the 82 total funds included in the ICI's report. The ICI does not include Holding Company Depository Receipts, exchange-traded funds sponsored by Merrill Lynch of New York, because they are not issued by a registered investment company.
Net issuance of exchange-traded fund shares slightly increased to $3.21 billion in February, up from $2.34 billion in January, according to the ICI. Net issuance in December 2000 was over $10 billion.