Equity inflows surge to multi-year high, but can it last?

Of the $24.7 million total inflows into mutual funds tracked by the US Investment Company Institute in the first week of the year, $14.8 billion was allocated to equity, versus $9.76 million into bonds.

Five-year high

Similarly, funds analyst EPFR Global reported that equity fund flows had hit a five-year high in the first week of January, and retail investment hit its highest level since the third quarter of 2009.

As an aside, there was also good news for active managers, with equity inflows at their highest since EPFR began tracking in 2000.

This rebalancing, if continued, could be a powerful tide. According to Lipper, there remains $1.78 trillion in US money market funds alone, versus $2.23 trillion held in US-registered equity funds.

Reasons to be cautious

At least in the US, there are some reasons to be cautious, however.

Biderman points out that dividend payments bought forward to the end of 2012 to avoid higher taxes provided a natural one-off boost to investors who may well have simply reinvested their windfalls.

‘I estimate that at least $100 billion in extra income was recognised in late 2012. And that is the source of new cash for investments so far this year,’ he said.  

‘Q4 2012 income was up $60 billion as a result of the front running of bonuses and the like and about $40 billion came from the sale of stock and other assets before year end.