(January 11, 2013) — Investors have plunged back into equities with flows reaching almost record levels in the first week of the year, showing renewed confidence in the global economy, market participants have said.
In the first full week of trading, US equity mutual funds saw massive inflows, according to data monitor Lipper.
A note from Lipper’s Director of Research Services Tom Roseen said: “Equity funds, including exchange-traded funds (ETFs), took in a whopping $18.3 billion for the week ended Wednesday, January 9, their fourth largest net inflows since Lipper began calculating weekly flows in January 1992.”
Roseen noted that on Friday, January 4, investors catapulted the S&P 500 index to its highest close since December 31, 2007, after the US Congress passed budget legislation that raised taxes on the wealthiest Americans and extended unemployment benefits-delaying the spending-cut fight until the debt debate occurs in a few weeks.
More widely, so far this week the trend has continued, according to data monitor EPFR. It showed that $6.8 billion was moved into equity funds, widening the gap over flows into fixed income funds, which have stayed relatively stable.
Kevin Murphy, equities fund manager at Schroders, told aiCIO: “The significant flows into bonds since 2008 has pushed yields down to a level that many investors feel offer insufficient compensation for the risks of inflation. As such, investors are beginning to look to equities as they offer greater potential upside, whilst also offering inflation protection. With equities having suffered many years of outflows, the move at the beginning of this year is an encouraging start.”
A note from investment bank UBS showed that over the last couple of months investors in the US had begun reversing a trend of selling equities in favour of buying bond funds, with the largest outflows coming from high yield products.
Bank of America Merrill Lynch’s equity strategy team said over the past week, 17 of the top 20 ‘winners’ were country-based equity funds. These funds posted total returns of between 1.3% and 3.2%. The three bond ‘winners’ were Greek, Korean and Mexican government debt.