By YiLi Chien, Senior Economist
Mutual fund flows merit discussion for several reasons:
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.
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.
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