We suspect that net cash outflows from bond mutual funds — a trend firmly established in mid-2013 — will continue in 2014.
Don't read too much into the positive net cash flows that flowed into bond mutual funds during the first two weeks of January. After all, these were the first net inflows to this fund category since the end of September 2013 — and are especially unsurprising, as bond mutual fund flows tend to spike during January. For example, the first week of 2013 was the highest weekly net cash flow into bond funds recorded across the entire year, and for the whole month, more than $32 billion in net inflows came in. In fact, for the past three decades, January has brought in more net cash flows (cumulatively and on average) than any other month.
Heading into February, our expectations are already coming to fruition as a third week of estimated new cash outflows has brought the year-to-date tally back to negative territory (estimated $0.6 billion).
Since June 2013, worries over rising interest rates and the Fed's next moves coincided with an average of more than $22 billion a month flowing out of this large fund category, totaling $177 billion in net cash outflows. This trend led to the first annual net cash outflow in nine years for the category. Despite this outflow, aggregate net cash inflows from 2007 through 2013 for this broad category remain at a whopping $1.1 trillion; 95% of this accumulated from 2009-2012.
U.S.-focused equity mutual funds: Slightly positive YTD — but still a big shift
Despite the recent decline in U.S. equities, net cash flow estimates into domestic equity mutual funds are holding in positive territory so far in 2014 (at an estimated $8 billion). Last year's net inflow of just over $20 billion was but a drop in the bucket compared with a fund category that measures at more than $5.7 trillion in assets. Still, after seven consecutive years of annual net outflows from the category (totalin
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