December fund flow trends show equity funds continuing to gather assets at the expense of fixed income.

David J. Chiaverni and Richard Fellinger of BMO Capital Markets observe in their recent research report that investors contributed $27 billion to long-term mutual funds and ETF in December.

Fund flow: rotation from bonds to equities

As can be deduced from the following table, December fund flows for U.S.-registered mutual funds were a net +$4.5 billion, below the six-month average of $10 billion. However it was above the year-ago period of -$4 billion. While equity fund flows remained strong in December, fixed income funds remained in redemptions for the seventh consecutive month.

Fund flow rotation

The above table also evidences ETFs had inflows of $23 billion in December compared to the six-month average of $18 billion, with flows being particularly strong in equity funds with $26 billion of inflows. However, fixed income ETF flows returned to modest outflows of -$1 billion, in line with the six-month average.

Top picks

The BMO analysts point out that among the traditional asset managers, BlackRock, Inc. (NYSE:BLK), Invesco Ltd. (NYSE:IVZ) and T. Rowe Price Group, Inc. (NASDAQ:TROW) had strong inflows in December, particularly in equities. However, Eaton Vance was the laggard in flows owing to equal redemptions in both equity and fixed income.

The analysts believe passive investments and ETFs will continue to attract above-average asset flows over the next several years for BlackRock, Inc. (NYSE:BLK). The company is a leader in managing passive investments, through both its institutional index product and its iShares branded ETF line-up. Accordingly the BMO Capital Markets analysts rate BlackRock as outperform with a $535 price target.

The following table depicts BMO analysts’ price targets for the traditional managers:

Price target-Traditional managers

The BMO Capital Markets analysts believe among the alternative managers, Apollo Global Management LLC (NYSE:APO) and The Blackstone Group L.P. (NYSE:BX) are the top picks. Their price targets for the alternative managers are depicted below:

Price target-Alternative managers

Citi bullish on Alternative managers

In another report tracking U.S. mutual fund flows, William R Kartz and team at Citi Research point out that passive inflows totaled $29 billion in December or a 11% annualized growth rate and $285 billion in 2013, or a 9% growth rate.

On the equities side, Citi analysts point out that by looking at 4Q and 2013, WisdomTree Investments, Inc. (NASDAQ:WETF), Affiliated Managers Group, Inc. (NYSE:AMG), Artisan Partners Asset Management Inc (NYSE:APAM), Waddell & Reed Financial, Inc. (NYSE:WDR) and Charles Schwab Corp (NYSE:SCHW) produced the best flow dynamics while Janus Capital Group Inc (NYSE:JNS) and Ameriprise Financial, Inc. (NYSE:AMP) lagged, followed by Legg Mason Inc (NYSE:LM) and Abbott Laboratories (NYSE:ABT).

On the fixed income side, Citi analysts believe WisdomTree Investments, Inc. (NASDAQ:WETF), Eaton Vance Corp (NYSE:EV) and Waddell & Reed Financial, Inc. (NYSE:WDR) produced among the strongest FI flows during 2013 while AMP and FII lagged.

From a sector perspective, William R Kartz and team at Citi Research are most bullish on alternative managers but price sensitive on traditionals, broker dealers and exchanges following sizeable upswings in 2013.

Citi analysts maintain Buys on Invesco Ltd. (NYSE:IVZ), Franklin Resources, Inc. (NYSE:BEN) and T. Rowe Price Group, Inc. (NASDAQ:TROW) while reaffirming their Sell on Janus Capital Group Inc (NYSE:JNS) and Invesco Ltd. (NYSE:IVZ)/Eaton Vance Corp (NYSE:EV) pair trade.