Thursday, December 11, 2008

WSJ: Mutual Fund Inflows Slow

The Wall Street Journal's Marketbeat blog had an interesting post about mutual fund inflows.

- From late September into early November, portfolio, mutual and hedge fund managers faced a wave of redemptions. With the stock market in free fall thanks to a global economic and credit crisis, and banks making all types of investors aggressively rein in their leverage levels, this push of redemptions helped erase more than a decade of gains for the Standard & Poor’s 500. All told, TrimTabs Investment Research posted mutual fund outflows of more than $80 billion in the five weeks ended Oct. 29.

- But in the last few weeks, the wave of money that had been coming out of mutual funds and portfolios has started to trickle back into the market, albeit slowly. In the week ended Nov. 26, for example, mutual funds posted $10.4 billion in inflows, with the Dow Jones Industrial Average marking a 6% gain for the period.


- “We’ve seen some meaningful flows on a daily basis into our funds. And we’ve seen it throughout the last couple weeks as it’s been net inflow mode for a couple of weeks now,” said Michael Petroff, a portfolio manager with mutual fund company Heartland Advisors.

This doesn't necessarily bode well for the stock market though. This is mostly due to no great options for investing cash.

- For example, interest in ultra-safe U.S. Treasurys has surged in recent days to the point that the yield on the three-month T-bill traded at 0.007% recently and even briefly dipped below zero Tuesday.


I doubt many investors are excited about borrowing money to the government interest free. I believe that many investors are more likely to be talked into jumping back in the market with the lack of other options.

The period of forced selling due to fund redemptions appears to have pretty much slowed. This should help to slow down the market volatility, which should bring back more individual investors.

Of course all of this will take time, but this is part of the process of de-leveraging.

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