On the Economy header image

Mutual Fund Flows and Investor Behavior

private payroll employment numbers

©Thinkstock/alzay

By YiLi Chien, Senior Economist

Mutual fund flows merit discussion for several reasons:

  • The total value of mutual funds exceeded $15 trillion in the U.S. last year. This value translates to around a 30 percent market share of U.S. corporate equity. Therefore, the movement of mutual fund flows could influence stock and bond prices significantly.
  • According to the Federal Reserve Board’s Financial Accounts of the United States, households directly hold approximately 60 percent of bond and equity mutual funds and 42 percent of money market mutual funds. Hence, the flows of mutual funds can also shed light on the portfolio adjustments among ordinary households in response to changes in market conditions.
  • Mutual fund flows data are updated weekly, which can give a more instant view on the demand for financial assets.

Below are money market, equity and bond mutual fund flows from the first half of 2014. There is a clear trend of money outflows from money market mutual funds and inflows into both equity and bond market mutual funds. Money market mutual funds exhibited a large and sudden outflow in March and June. By the end of the third week in June, total outflows amounted to more than $144 billion.

mutual fund flows

In 2013, equity mutual funds received strong net inflows of $142 billion. This year, equity mutual funds continue to attract investors, though at a slower pace. The average monthly inflows are down to around $11 billion from $11.8 billion in 2013. The net inflow to equity mutual funds reached $64 billion by mid-June.

Unlike the persistent inflow to equity mutual funds last year, there was a turning point for bond mutual funds from inflows to outflows in June 2013, as the Federal Reserve laid out its tapering plan. Strong outflows in the second half of last year meant an overall outflow of $71 billion. However, as the figure above shows, mutual fund investors have increased their holdings of bond mutual funds significantly since February. The averaging inflows reached $8.4 billion per month, bringing the total inflow to $48 billion by mid-June.

Overall, there has been a reverse effect of flight to quality in the past six months. Mutual fund investors have been adjusting their portfolios from safe and short-term money market funds into relatively riskier and longer-term mutual funds.

Additional Resources

Share: on Twitter on Facebook on Google+ Email

This entry was posted in Financial and tagged , . Bookmark the permalink.
Commenting Policy: We encourage comments and discussions on our posts, even those that disagree with conclusions, if they are done in a respectful and courteous manner. All comments posted to our blog go through a moderator, so they won't appear immediately after being submitted. We reserve the right to remove or not publish inappropriate comments. This includes, but is not limited to, comments that are:
  • Vulgar, obscene, profane or otherwise disrespectful or discourteous
  • For commercial use, including spam
  • Threatening, harassing or constituting personal attacks
  • Violating copyright or otherwise infringing on third-party rights
  • Off-topic or significantly political
The St. Louis Fed will only respond to comments if we are clarifying a point. Comments must be written in English and are limited to 1,500 characters. While you will retain all of your ownership rights in any comment you submit, posting comments means you grant the St. Louis Fed the royalty-free right, in perpetuity, to use, reproduce, distribute, alter and/or display them, and the St. Louis Fed will be free to use any ideas, concepts, artwork, inventions, developments, suggestions or techniques embodied in your comments for any purpose whatsoever, with or without attribution, and without compensation to you. You will also waive all moral rights you may have in any comment you submit.

comments powered by Disqus

The St. Louis Fed uses Disqus software for the comment functionality on this blog. You can read the Disqus privacy policy. Disqus uses cookies and third party cookies. To learn more about these cookies and how to disable them, please see this article.