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Third Quarter (2010) Fund Flow Report at Trader’s Narrative

Third Quarter (2010) Fund Flow Report

As an addendum to yesterday’s weekly sentiment overview, here is a bit more detail from Lipper FMI regarding US fund flows. There are only several sources for fund flow information and they each report slightly different statistics based on their methodology and thoroughness. But they all are estimates and with a few stragglers remaining yet to report, this is a preliminary report for the third quarter of 2010.

As we’ve already detailed numerous times, the same thesis remained in effect these past three months. US investors have left equity mutual funds in droves for the past few years for the perceived safety of bonds. That trend continued in the third quarter with taxable bond funds receiving inflows of $57.3 billion and municipal bond funds an inflow of $11.3 billion. Meanwhile there were outflows of $22.9 billion from Lipper’s US diversified equity category. US mutual fund investors have been ambivalent about global equities adding just $300 million in the three months from July-September 2010.

Q3 fund flows Lipper Oct 2010

But if we include ETF fund flow data, the picture is slightly less gloomy. According to Lipper FMI, US investors added $4.2 billion to US domestic equity ETFs and a whopping $11.3 billion to global equity ETFs. The fixed income thesis remains intact with an additional $7.4 billion being directed to the sector via ETFs.

Focusing in on the equity flows, US large caps were the least favored hemorrhaging $15.1 billion. In contrast, emerging markets received $6.6 billion providing some fodder for Grantham’s (and other’s) concerns about a potential bubble developing in emerging markets such as Brazil, India, China, etc. But it just may be that investors are going where the returns are. Case in point, commodity oriented funds had inflows of $1.3 billion. And interestingly enough there is enough pessimism (or portfolio hedding) for $700 million being directed to dedicated short mutual funds.

Municipal bond funds continue to receive a consistent (but moderate) inflow with only 3 out of the past 91 weeks experiencing outflows. Money market funds swung to net inflows after persistent outflows. July’s inflow of $7.7 billion was the first positive month in 17 months (with an average outflow of $60.9 billion). August had an much larger inflow of $26.6 billion but September swung back to an outflow with $20 billion. But over all, the third quarter saw net inflows of $14.3 billion for money markets.

In aggregate, $60 billion was deposited into mutual funds in the third quarter. In contrast, the second quarter saw an aggregate withdrawal of $120 billion. For more details, you can watch the 10 minute video by Matthew Lemieux of Lipper FMI below:

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