Equity Mutual Funds Witness Sizeable Inflows In November

Equity mutual funds witnessed robust net inflows of $22.49 billion in November 2013, against outflows of $23.17 billion experienced in November 2012.

Tobias Levkovich and team at Citi Research point out for the first 51 weeks of 2013, total equity funds attracted inflows of $140.83 billion through December 18th, in sharp contrast to outflows of $147.15 billion over the same period in 2012.

Strong inflows in domestic and international equity mutual funds

Citi analysts point out that domestic equity funds registered inflows of $6.56 billion, though it edged down from the $8.01 billion inflow witnessed in the previous month. However, for the first eleven months of 2013, U.S. oriented funds experienced cumulative inflows of $27.15 billion, showing a marked recovery from outflows of $129.69 billion recorded in the first eleven months of 2012. Moreover, this compares favorably with exits of $155.97 billion and $132.46 billion recorded in 2012 and 2011 respectively.

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The following table provides a snapshot of funds flows across various traditional mutual funds:

As is evident from the above table, funds that invest primarily internationally attracted $15.94 billion in November, and were up from inflows of $12.67 billion experienced in October.

Bonds funds witnessed outflows

Citi analysts point out total bond funds witnessed a sixth consecutive month of outflows, as investors pulled $18.12 billion in November compared with October’s $15.62 billion outflow.

As can be seen from the following graph, total bond assets continued to retreat from their April 2013 peak as assets in November 2013 fell to $3.3 trillion.

Bond flows Equity mutual funds

The analysts note YTD through November, bond funds suffered outflows of $57.92 billion, which is a substantial drop from the $296.35 billion inflow attracted during the first 11 months of 2012.

November witnessed outflows in growth funds

Citi analysts note growth funds posted outflows of $3.84 billion in November, moderating slightly from the $3.90 billion inflow posted in October. The analysts point out that YTD through November, growth funds suffered outflows of $12.50 billion, but improved from the $98.79 billion outflows experienced during the first 11 months of 2012.

In comparison, value funds experienced respectable inflows of $10.40 billion in November and easily surpassed November 2012’s outflow of $1.82 billion.

The following graphs highlight the total assets and monthly growth fund flows:

Equity mutual funds

Citi analysts believe that a 1Q14 correction in the 5% to 10% range is possible given weakening EPS forward guidance trends and some softening in the Cyclical Expectations Model. However, with a 1,975 S&P 500 target by year-end 2014 backed by improved economic conditions, Citi analysts remain generally constructive longer term while continuing to advise nearer term tactical caution.