What Investor Flow Data Is Telling Us
Mutual fund flow data
for March was released last night, and investor pessimism for
equities appears to have receded somewhat, as stock funds posted a net inflow of
funds while bond fund inflows, although still substantial, appear to have slowed
down.
 Equities
Stock funds had an inflow of $243 million in
March, compared to an $11.1 billion outflow in February. This was the first
month since November of 2002 that money went into stick funds. But most
importantly, however, funds that invest in US equities received $1.6 billion, as
opposed to an outflow of 10.6 billion in February. Meanwhile, funds that invest
in international equities saw a total of 1.3 billion in March, compared with an
outflow of $509 million the month before. Total stock fund rose to $2.551
trillion, representing 41% of mutual fund assets.
Fixed IncomeÂ
Bond fund inflows slowed to $10.8 billion in
March, compared with $19.7 billion in February. However, a record setting $5.3
billion of this inflow went into high yield bond funds, which, as I have
mentioned in the past, should translate into a more receptive attitude by
longer-term investors towards equities in the coming months. This can be
attributed to the fact that investors who allocate money to high yield bonds use
business fundamentals, as do stock investors.
Although the extreme bearish trend of investor
flows out of equities subsided in March, and most probably did the same in
April, there is still room for improvement in the months ahead; witness the
historically low equity mutual fund assets (only represent 41% of total fund
assets) and the record high yield allocations during the past six months. Short
term, however, it would not be surprising if the equity markets experience a bit
of a pull-back–after the S&P advanced by 8%, the NASDAQ over 9% and the DOW
over 6% in April. But any correction should be viewed as a good buying
opportunity, as equities should reume a gradual move up in the months ahead.