Lipper Research Senior Analyst Don Cassidy on "Business for Breakfast" 1060 KRCN Tuesday - July Money Flows
Tuesday, August 16, 2005
Q. Well, Don, we understand you folks at Lipper have been cranking thenumbers to see what investors did with their money in funds for July?A. Right. The "net flows," as we call them, looked like this:
- Equity Funds +10.0 $billion in-flow
- Bond Funds + 3.7 $billion in-flow
- Money Funds + 6.9 $billion in-flow
- Total +20.6 $billion in-flow
Q. What do you make out of that when you look behind the totals?
A. Well, first, this is now the third month running (first we've seen since2002) when money funds had net inflows. Of course, rising short-end ratesclearly are helping. Rates on money funds were about 0.6% before the Fedstarted raising rates and now they are a bit over 2.0%.
Q. And what about bond funds? I thought people were very concerned aboutlow long-term rates?
A. That is a very perceptive question. The riddle is solved if one looksinside the total, to the details. About one-third of the bond flows were inshort- and intermediate-term funds, so we do see some reflection of suchconcerns. But also, people were betting on a strong economy by the types offunds they were buying:
- High-Yield +$250 million
- Multi-sector +500 million
- Corporates +1.4 $billion
- Emerging Mkts Debt +300 million
- Governments +350 million
So it is not like people were flocking to traditional high-quality vanillabond funds. They were reaching for yield and betting on the economy.
Q. What about in the equity or stock funds, Don?
A. About $4.1 billion went into world-equity funds. That is down abouttwo-thirds from the highs late last year when the dollar was weak. But itstill shows that a lot of people want to bet against the dollar longerterm.
About $1.6 billion came out of S&P 500 index funds. They have low expensesbut large-cap has underperformed for about six years now, and people seemto be going to where the action is.
Value took in $2.7 billion and Growth only 0.4 $B.
Large-cap had outflows of $7.1 billion but multi-cap took in $5.6billion.
Q. How about sector funds? Is the action in energy?
A. Absolutely. We see a long-term pattern of people chasing performance(with a little delay.) Natural Resources funds took in $1.2 billion net,and Real Estate Funds almost as much, at $1.1 billion.
Q. You mentioned people liking value. Does that mean they are buyingincome-oriented funds beyond real estate?
A. Absolutely: Balanced funds took in $1.1 billion and Income funds $1.8billion.
Q. What about our old friends the Technology funds?
A. Even though they had performance of about +6.2% in just the one month,it looks like people were thinking "get out when I get even" since the netflow was an out flow of about $700 million. They have only about $36billion of assets left (down 80% from their old top), which is 25% lessthan what there is in Health/Biotech funds, and about $20 billion less thanwhat is in Real Estate funds. How times change!
Q. Isn't $10 billion into equity funds a decent month's number, though?
A. When you figure that about $10 billion goes in on automatic pilot in401(k) plans, it means net, people were not doing any other saving withfunds. They spent more than $35 billion in the month on cars, though.
#
Don Cassidy is a Senior Research Analyst at Lipper specializing in fund flows, exchange-traded funds, (ETFs), closed-end funds, equity fund performance, and author of Trading on Volume (McGraw-HIll).
To read more Interviews, please visit the column archive.
