Equity Mutual Funds Witnessed Substantial Inflows In October

Equity mutual funds saw dramatic inflows of $21.06 billion in October, compared to $2.56 billion inflow witnessed in the previous month.

Tobias Levkovich and team at Citi Research however point out that a very late 2013 correction is possible for equities given weakening EPS forward guidance.

Total stock fund assets rose to record levels

According to Citi analysts, total stock fund assets rose by $238 billion in October to a record high $7.41 trillion. The following graph highlights such record highs:

Equity Mutual Funds

Dissecting the data on a monthly flow basis, the analysts observe that during the first 10 months of 2013, total stock funds have attracted $134.41 billion, indicating a sharp turnaround from the $99.29 billion outflow witnessed over the same 10-month period in 2012.

Interestingly, in October 2013 equity funds posted robust net inflows of $21.06 billion, showing a surge from September’s $2.56 billion inflow, while bettering $16.42 billion outflow posted in October 2012.

The following graph presents the monthly flows since January 1995:

Monthly flows

Domestic equity funds flow

Turning to domestic equity funds, the analysts point out that in October 2013, domestic funds attracted inflows of $8.05 billion, reversing the $4.57 billion outflow experienced in September and bettering October 2012’s $14.44 billion withdrawal.

Domestic total assets

According to Citi analysts, for the first ten months of 2013, U.S. oriented funds experienced cumulative inflows of $20.63 billion, marking a recovery from outflows of $110.33 billion in the first ten months of 2012. This compares favorably with exits of $155.97 billion and $132.46 billion posted in 2012 and 2011 respectively.

Domestic monthly flows

Outflows in bond funds

Citi analysts note total bond funds experienced a fifth consecutive month of outflows, as investors pulled $15.58 billion in October, as compared with September’s $11.58 billion outflow. As highlighted in the following graph, the total bond assets continued to retreat from its April 2013 peak as assets in October dropped to $3.36 trillion.

Total assets-Bonds

Turning to traditional mutual funds and ETFs, the analysts point out that October’s total equity inflow of $48.53 billion accelerated from September’s inflow of $29.79 billion and improved from the outflow of $19.18 billion that was registered in October 2012. As can be seen from the following table, 2013 YTD total inflow of $267.82 billion has massively trumped 2012’s aggregate outflow of $14.40 billion over the same time frame.


Growth vs. Value

The analysts point out that growth mutual funds witnessed inflows of $3.93 billion in October, reversing the $4.75 billion outflow experienced in September. Growth funds suffered cumulative outflow year to date of $8.62 billion, though improved from the $81.29 billion outflow witnessed over the same time frame last year.

However, value funds experienced respectable inflows of $4.12 billion in October and easily surpassed October 2012’s outflow of $3.49 billion.

The following chart highlights the trend in the Growth Vs Value Total Assets:

Growth Vs Value

Despite strong showing in October, Tobias Levkovich and team at Citi believe a very late 2013 correction in the 5% to 7% range is possible for equities considering weakening EPS forward guidance trends and the softening in the Cyclical Expectations Model.

The analysts maintain a 1,900 S&P 500 (INDEXSP:.INX) target by year-end 2014, as economic conditions set to improve next year. However, Citi analysts remain generally constructive longer term while continuing to advise nearer term tactical caution.