Avi Nachmany continued with his positive message Tuesday, seeking to soothe fund execs' nerves.
"Once again, and similar to past periods of extreme market volatility observed over the past four decades, individual investors using mutual funds to save for retirement were a source of stability for the US financial markets," Nachmany, Strategic Insight's director of research, said.
Nachmany's message was supported by the fact that although equity funds did see net redemptions of $50 billion in September, outflows were well below those on the historical trend line. Net flows to equity ETFs were even in positive territory, bringing in nearly $40 billion during September. Nachmany has always maintained that even in times of heightened volatility, fund investors stick with their portfolios.
Company Press Release
NEW YORK, NY – October 7, 2008 – Individual investors in US stock and bond mutual funds largely maintained buy-and-hold attitudes during September, according to new data from Strategic Insight, a business intelligence provider to the fund industry. “Once again, and similar to past periods of extreme market volatility observed over the past four decades, individual investors using mutual funds to save for retirement were a source of stability for the US financial markets,” commented Avi Nachmany, Strategic Insight’s Director of Research.
For the first nine months of 2008, across all investment segments, mutual fund cash inflows in the US exceeded $220 billion, according to Strategic Insight.
During this period, net inflows to bond mutual funds eclipsed $110 billion and money market mutual fund net inflows were greater than $150 billion, even after accounting for the large redemptions by institutional investors during September.
Stock fund net redemptions year-to-date represented about 1% of equity fund assets in aggregate. In that context, they were modest and reassuring in light of 2008’s financial and economic uncertainties; note that the S&P 500 index dropped by more than 20% through the first nine months of 2008.
Some September 2008 fund flow highlights:
* Stock funds: in aggregate, equity fund net outflows (excluding ETFs) totaled an estimated $50 billion in September, roughly 1% of equity fund assets. Counterbalancing some of those redemption trends, equity ETFs drew net inflows of nearly $40 billion during September. As suggested in the chart below, redemption activity by stock fund investors remained muted in September, and well below the historical trendline.
* Equity funds’ portfolio manager activity: As in previous periods, equity funds’ portfolio managers, sitting on more than $300 billion in cash, likely “buffered” some of September’s net redemptions by fund shareholders, and net sold a smaller volume of individual stocks, an amount likely equal to just 0.5% of all equity mutual fund assets. (It’s worth noting that given the net purchases by equity-driven ETFs, liquidity pressures due to fund portfolio net sales were quite small.) See the chart below:
* In aggregate, SI estimates that bond fund flows in September were relatively flat, with very small net redemptions among tax-free bond funds counterbalanced by slight inflows into taxable bond funds. US Government and short-duration funds experienced modest inflows, while corporate and global bond funds suffered modest redemptions.
* Taxable Money Market Funds: The extraordinary flight from money market funds holding commercial paper, with a corresponding shift to US Government MMFs, is well documented by now. The U.S. Government MMF insurance program, and provisions of liquidity by the Federal Reserve to banks so they can buy commercial papers from money market funds, seemed to ease some of the selling pressure on the MMF section.
These cash flow result are included in Strategic Insight Simfund databases, the world’s principle competitive and business intelligence tool for mutual fund data, tracking monthly nearly $23 trillion of assets and flow trends.
“It is natural that the deterioration in financial and economic confidence would trigger some defensive asset allocations among mutual fund investors. As most mutual funds are bought through financial advisors, the steadying influence of professional advice should continue to be evident in the less-volatile nature of mutual fund flows,” Nachmany explained. “Our research also shows that periods of large net fund redemptions tend to be short-lived.”
In its 22nd year, Strategic Insight has become a widely used and well respected research firm for the mutual fund and wealth management industry, providing clients with in-depth studies, consultation, and electronic decision support systems .Strategic Insight assists over 250 organizations worldwide, including the largest mutual fund management companies operating in the U.S. and the largest insurance companies serving the VA business. SI clients are responsible for about 90% of all U.S. mutual fund assets. Strategic Insight also serves many Wall Street equity research and investment banking firms, service companies, and many of the largest asset managers in Europe and Asia. For more information, visit our home at www.sionline.com.
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