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Equity flows flashing signs of exhaustion with weekly outflow

Domestic funds 03.06.2013Enlarge GraphDomestic equity fund flow was negative in the last week of February after a strong seven week run

The Investment Company Institute (ICI) reported that domestic equity mutual funds had their first week of redemption in seven weeks with $1.1 billion of funds being pulled by investors for the week ended February 27th. This outflow broke a streak of seven consecutive weeks of inflow. The 12 week average for domestic equity fund flows, what we believe to be a more important medium term trend, now sits at a negative $399 million outflow which relays the ongoing struggle for the category. Domestic equity flow had its best week during the first week of 2013 with a $7.7 billion inflow, with the worst week during the past 12 being the $9.2 billion redemption during the last week of 2012.

Year-to-date tallies for domestic mutual fund flow has still started 2013 in much better fashion with $20.9 billion in inflow versus the $2.8 billion in outflow that investors pulled from domestic equity funds in the first eight weeks of 2012. The combination of declining correlations and a stock market that while reaching new highs is still trading at a lower multiple than the last time new highs were reached in 2007, driving improved year-over-year trends.

The domestic equity fund category has been the direct target of growing interest by investors pursuing exchange traded funds versus equity mutual funds. In our recent article, we outline the many benefits of ETFs versus mutual funds.  The improved equity fund environment benefits leading equity mutual fund managers including T Rowe Price (TROW), Invesco (IVZ), and Janus Capital (JNS).