The Investment Company Institute (ICI) mutual fund survey for the third week ending February 20th showed that the All Bond category (which includes both taxable and tax-free bonds) had a slightly below average inflow. While our research show no “great rotation” out of bonds yet, it may be notable if weekly flow trends for fixed income start to come in below average for a longer period of time which may signal that the long sought after rotation into equities has begun. Weekly bond flows, as reported by the ICI, have a short-term impact on the market and respective asset management stocks.
For the week ending February 20th, both taxable and tax-free mutual funds took in $4.7 billion in new investor money. This amount was the second consecutive week of decline from the $5.0 billion taken in by funds last week and the $6.0+ billion gathered in the week ending February 7th. The 12 week moving average level now sits at $4.8 billion, which we think is a more important trend line versus any single weekly result in isolation. The best week so far this year was the over $10.6 billion investors poured into bond funds for the week ending January 16th which displays the fairly mediocre inflow for this week. The worst week over the past 12 was the mere $100 million deposited into funds for the week ending December 19th.
In aggregate, our research shows that bond funds raised year-to-date in 2013 are still close to record levels as outlined in our article Bond flows are accelerating not decelerating. If fund flows into bonds continue to hold their positive levels, the main beneficiaries are the major fixed income mutual fund managers including Legg Mason (LM), Franklin Resources (BEN), and Blackrock (BLK). Leading fixed income exchange traded funds (ETFs) are also likely to see inflows along with the bond mutual funds as surveyed by the ICI, which could make a case for owning the Vanguard Total Bond Market ETF (BND) and the Vanguard Short Term Bond ETF (BSV).