With equity markets continuing to trend higher across the globe to start the year, mutual fund flow continues to improve as investors allocate more money to stocks to potentially capture these returns. With the S&P 500 moving higher in lockstep with improved weekly jobless claims (see our article, Why jobless claims are worth tracking) and also correlations within major stock indices breaking down which is allowing active managers a better chance to outperform, weekly mutual fund flows continue to trend higher to start 2013.
According to the Investment Company Institute, domestic equity mutual funds had their 3rd consecutive weekly inflow with another $3.4 billion flowing into active equity mutual funds. This continued the momentum from the past 2 weeks which saw $7.7 billion come into U.S. stock funds in the first week of the year and $4.8 billion which flowed in during the second week of 2013. This was the first 3 week consecutive stretch of inflows since February 2011 which also broke 24 consecutive weeks of outflow for the domestic mutual fund category.
While domestic equity fund flow is experiencing a short-term rebound to start 2013, during the course of the past year domestic mutual funds have experienced drastic outflows. Looking at the time period from January 2012 to January 2013, domestic equity funds have seen $151 billion withdrawn by investors, a combination of a secular move into more popular exchange traded funds (ETFs) and pessimism about the outlook for U.S. markets. International equity funds conversely have fared much better with $20 billion in investor inflow during this time as investors are becoming more sophisticated with global asset allocation and are seeking out potentially higher returns in emerging markets. Outflows have been so persistent in domestic equity funds that out of the past 56 weeks (from January ’12 to January ’13), only 8 weeks had positive inflow versus 48 weeks of outflow. The international fund flow category has been more balanced with 30 weeks of inflow versus 26 weeks of outflow over the past 13 months.
While most asset managers have some exposure to more stable international equity trends versus the consistent decline in domestic equity fund flows, the managers with the largest international equity mutual fund families include Franklin Resources (BEN) which owns the Templeton family of funds run by star portfolio manager Mark Mobius. BEN’s international assets-under-management (AUM) comprise 32% of its total client assets, the largest international exposure of the major asset managers. BlackRock (BLK) and Janus (JNS) also have substantial international equity franchises, currently at 23% and 16% of AUM respectively.