Investors are taking money out of U.S. bond and stock mutual funds because of the increase in economic uncertainty in July, according to research released on Friday by Strategic Insight.
U.S. mutual fund investors redeem an estimated $16 billion in cash out of U.S. stock and bond mutual funds in July 2011 (excluding ETFs and funds underlying variable annuities), reported Strategic Insight. July redemptions equaled about 0.2% of assets held in stock and bond funds.
In the first week of August, Strategic Insight estimates that stock fund net redemptions equaled about 0.3% of the more than $6 trillion held in equity funds. In addition, the volatility over the past week may have resulted in further net withdrawals from stock mutual funds of about 0.5%, according to Strategic Insight.
Nonetheless, Strategic Insight called these rations “reassuring” since just $3 to $5 out of $1,000 invested in stock funds were redeemed during each week of the market’s extreme volatility. The ratios, the research pointed out, are in line with historical redemption patterns over the past 20 years and before.
“Recent market volatility has further eroded investors’ appetite for risk,” said Avi Nachmany , SI’s Director of Research, in a press release. “While some short-term redemptions from equity mutual funds during recent weeks and possibly in coming ones are likely, Strategic Insight’s research has shown that redemption spikes after stock market price declines have historically been limited in scope and short-lived.”
July’s fund flows data showed investor’s were losing confidence. In July 2011, bond mutual funds saw net inflows of $8.4 billion, due to strong demand for global and emerging markets bonds, “as investors continued to put money into taxable bond funds in a search for alternatives to low-yielding cash vehicles and as low-risk ways of participating in financial markets.” Through the first seven months of 2011, bond funds saw net inflows of $77 billion, slightly lower than 2010’s pace. Strategic Insight anticipates demand for certain bond funds will persist as yields on cash are so low and stock market anxiety is high.
Demand for stock funds declined in July and redemptions rose in early August. Strategic Insight pointed out that positive inflows into stock ETFs almost matched traditional equity funds’ outflows in July. Excluding ETFs, U.S. equity mutual funds saw net outflows of $23 billion in July, and international/global equity funds saw net outflows of nearly $1 billion. Money-market funds saw net outflows of $113 billion in July, larger than outflows from June, when money funds saw net outflows of $44 billion.
Meanwhile, Strategic Insight said U.S. ETFs in July experienced roughly $15 billion in net inflows. Through the first seven months of 2011, ETFs (including ETNs) saw net inflows of $68.5 billion. At the end of July 2011, US ETF assets stood at $1.104 trillion.