In terms of fund flows, Citi calls August an ‘arid’ month. The period proved to be a healthy run for bond and equity funds, even though most inflows lagged behind the numbers of July; compared to last year’s August, returns are markedly up. Citi notes in the commentary:

“We continue to believe that late 2013 may prove more challenging given optimistic 4Q13 and 2014 EPS estimates that may need trimming, the impact of likely Fed tapering and a search for new market leadership, not to mention a potentially bitter political battle over budgets, health care and the debt ceiling. Credit conditions and hiring intentions are both sending positive economic signs, but the Citi Economic Surprise Index appears peak like and intrastock correlation is not providing a buy signal.”

Bond Funds

Equity funds balloon, bond funds shrink

In contrast to outflows of $77.37 billion from total equity funds last year until September 18, so far the total equity funds have gained $102.42 billion this year. Bond funds are doing the exact opposite, however; they suffered outflows of $19.72 billion through the same period of 2013, a significant shift from the $229.54 billion gathered in total bond funds over the same period in 2012. So far, bond funds have suffered their third straight month of outflows, after $29.53 billion was pulled out in August.

Total equity mutual funds could manage only a third of the inflows compared to July, adding in $6.65 billion compared to $18.34 billion in inflows in July. However, last month’s net flow was better in every way than the $18.3 billion in outflows that equity mutual funds suffered in August 2012.

Separately, international equity funds also gained $8.72 billion in inflows, whereas domestic funds took in $2.08 billion. Funds with exposure to the U.S. are doing significantly better this year compared to last year; net inflows came up to $15.38 billion until the end of August, in stark contrast to the $76.13 billion in outflows in the first eight months of 2012.

International equity fund flows

Value funds win over growth in August

Domestic equity funds, focused on growth stocks, saw outflows of $4.75 billion in August, against inflows of $6.4 billion inflow in July. August worsened the trend of outflows this year, these funds have so far seen $8.52 billion in outflows in the eight months of 2013 which is better than $57.91 billion outflow witnessed during the first eight months of 2012.

In comparison, value funds took in $2.67 billion in August, adding to $2.10 billion in inflows in July. Citi research further reports that in the first eight months of 2013, value funds posted inflows of $22.21 billion reversing the $18.22 outflow seen over the same period in 2012.

Emerging markets equity fund flows

Net inflows in emerging market funds came up to $1.32 billion, and EM funds have experienced $26.72 billion, nearly double the $14.33 billion inflow experienced during the same period in 2012, and on track for a new record year. Emerging market assets are now up 300 percent from their 2009 lows.

Annual flows in Emerging Market mutual funds