Thursday, September 15, 2011

August Marks Another Month of Heavy Mutual Fund Redemptions

August was another month of very heavy mutual fund redemptions - some $32.2 billion withdrawn.  Surprisingly even bond funds are being hit - seems like high yield was especially hit, which is not a surprise if there is a major slowdown coming/happening.

The drawdown in the past three months has been dramatic, and we now have net withdrawals to the tune of $21.2 billion year to date.  It remains ironic that stocks (and mutual funds) are the one thing people don't want to buy at a lower price ;)

For those who think much of this money is going into ETFs - we saw a net $1 billion inflow to ETFs.  That said, ETFs are having a far better year than mutual funds with nearly $90 billion in inflows.  I assume a lot of that money went into the gold ETF!

  • Investors sought refuge from the market's volatility in August, withdrawing money from stock mutual funds and bond funds alike. The retreat from stock funds was unusually heavy for the third consecutive month, marking a renewed aversion to risk.
  • A net $21.4 billion was withdrawn from U.S. stock mutual funds in August, and $10.8 billion from bond funds, industry consultant Strategic Insight said Wednesday.
  • Last month's exit from stock funds followed net withdrawals of more than $23 billion in July and $17 billion in June. The three-month trend marks an about-face from the start of the year, when investors consistently deposited more than they withdrew. Now, the year-to-date stock fund flow is negative, with $21.2 billion in net withdrawals.

Some more detail:
  • Foreign stock funds: Investors withdrew a net $1.4 billion from funds that buy foreign stocks. Flows into this category have been negative for two months in a row, but remain positive year-to-date, with nearly $44 billion in net deposits.
  • Bond funds: Investors typically are attracted to bonds when stock prices tumble. That was the case in July, when bond funds attracted $8 billion in net deposits.  But last month, investors in taxable bond funds -- a category that includes corporate bonds -- withdrew a net $9.7 billion. Strategic Insight noted big withdrawals out of floating-rate and high-yield bond funds. Both categories hold bonds that typically earn high rates of return, with greater risk of volatility.
  • Money-market funds: A net $69 billion was deposited into these funds, designed to be safe harbors where investors can temporarily park cash and quickly access it when needed.  (sounds impressive at first, but it was a giveback from the previous month which saw huge redemptions)  That proved a strong draw in August, in contrast with July. In that month, investors withdrew a net $113 billion, due to fears that Congress might fail to reach an agreement to lift the government's debt ceiling.
  • Exchange-traded funds: Investors deposited a net $1 billion into ETFs, which bundle together investments in a particular market index. Through the first eight months of the year, net deposits into ETFs total $89 billion.

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