In January 2013, we devoted our monthly commentary to asset flows and have since found it a good way to kick off the year. Interestingly, before the 2007-2009 financial crisis, it was a rather dry task to track the amounts investors put into and pulled out of various mutual funds. In the wake of that epic bear market, however, investor behavior shifted dramatically and made the topic more intriguing. The flows from 2012 showed a big preference for bonds over stocks, a huge swing from actively managed equity portfolios to passive ones and a much greater fondness for funds with stellar short-term performance. The 2013 flows looked better, with inflows to taxable bond, international stock and U.S. stock funds (including active U.S. stock funds) and less performance chasing.
The 2014 flow data show a return to the behavior that concerned us from 2008 to 2012. All four big, traditional asset classes – U.S. equity, international equity, taxable bond, and municipal bond – had inflows in 2014. That said, of the $201 billion flowing into the four groups, $107 billion went to international equity, taxable bond funds attracted $51 billion, $29 billion flowed to municipal bond funds, and U.S. equity received a mere $13 billion. One of the smart, key themes of this century has been a push toward more global portfolios, so many investors have been playing catch up with their international allocations. While the huge inflows to international stock funds therefore make some sense, we are puzzled by muni bonds drawing twice as much money as U.S. stocks. Continue Reading »