The Investment Company Institute (ICI) has released its mutual fund survey for the third week of February which displays that the momentum into All Equity funds is continuing. The category, as reported by the ICI, includes foreign and domestic mutual funds, and the positive inflow result was the 7th consecutive week that stock fund flows have been positive. ICI fund flows are a short-term event for investors with a marginal impact on the market and respective asset management stocks. It is a string of weekly flows when analyzed in aggregate that can however have a more intermediate term impact.
Mutual fund flows into both foreign and domestic stock funds tallied $4.5 billion for the week ending February 20th. While this was the third consecutive decline from the $8.1 billion inflow for the week ending January 30th, the inflow was the seventh consecutive week of positive fund-raising by stock mutual funds. This seven week trend of positive inflows is significant because it has been over two years since there has been nearly two consecutive months of positive stock flows. From the week of January 12th, 2011 through the week of February 23rd in ’11, was the last seven week stretch of positive stock flows which tallied $31.6 billion in aggregate. This seven week stretch to start 2013 has totaled $54.3 billion displaying the renewed fervor by investors to gain exposure to stocks.
Whilst we do not believe a substantial rotation from the strong inflows into bonds over the past four years has started, we do estimate that institutions are slowly having to readjust their asset allocation into equities. As outlined in our article Corporate pension plans now hold the lowest stock allocation in history, we do believe we have seen the nadir for stock flows this cycle. Leading equity managers that would benefit from improved levels of equity mutual fund flow include T Rowe Price (TROW), Invesco (IVZ), and Janus Capital (JNS). Leading equity ETFs could also benefit side-by-side with stock fund flows which include the iShares Core S&P 500 exchange traded fund (IVV) and the Vanguard FTSE Emerging Markets exchange traded fund (VWO).