Despite An Increase In Market Volatility, Investors Inject $93.5 Billion Into Long-Term Funds For Q1

by: Lipper Insight at Thomson Reuters

First-quarter 2015 was marked by an increase in market volatility. The Dow Jones Industrial Average witnessed 16 triple-digit moves during the month of March - the second-most of any month in history (October 2008 experienced the most). Investors were torn between the news that the European Central Bank (ECB) had finally launched its quantitative easing program - committing to buy 60 billion euros of eurozone sovereign debt each month through September 2016, with the goal of heading off deflation and propping up economic growth - and the Federal Reserve bank's plans to begin hiking rates, possibly as soon as June this year. Perhaps as impactful on investor psyche were the wild gyrations seen in oil, currency, and stock prices, and of course, the ever-present concern about conflicts in the Middle East.

Nonetheless, most of the major indices were able to post returns in the black for Q1, with the small cap-oriented Russell 2000 Price Only Index once again posting the strongest return of the group (+3.99%), followed by the NASDAQ Price Only Composite (+3.48%) and the S&P Industrial Price Only Composite (+1.57%). For the quarter, the average equity mutual fund posted a 2.56% return, with Lipper's World Equity Funds macro-classification (+3.36%) jumping to the top of the leader board for the first quarter in six.

(Source: Lipper, a Thomson Reuters company)

Lipper's preliminary Q1 2015 fund flows numbers showed that mutual fund investors were net redeemers of fund assets for the quarter, redeeming an estimated $22.2 billion from the conventional funds business (excluding exchange-traded funds [ETFs]). However, the headline numbers are deceiving. During the quarter, mutual fund investors were net redeemers of money market funds (-$85.0 billion), but were net purchasers of long-term assets, padding the coffers of conventional equity funds (+$23.3 billion), taxable fixed income funds (+$31.0 billion), and tax-exempt bond funds (+$8.1 billion). In line with Q4 2014, and despite increasing geopolitical concerns, for Q1 2015, U.S. fund investors appeared to favor nondomestic equity funds over domestic equity funds, injecting $17.7 billion versus $5.6 billion. Nevertheless, conventional fund investors continued to show a clear preference for developed-market funds (+$18.9 billion) over emerging-market funds (+$4.9 billion) during the quarter, despite China's strong plus-side Q1 2015 returns. ETF investors (authorized participants [APs]) were net purchasers of equity ETFs for Q1 2015, injecting $13.1 billion, while also being net purchasers of taxable fixed-income ETFs (+$16.9 billion) and municipal debt ETFs (+$1.2 billion). In total, APs and fund investors injected some $93.5 billion net into long-term funds during first-quarter 2015.