Reversal of the money flowing into US mutual funds By John Authers
THE SHORT VIEW By John Authers
Copyright The Financial Times Limited 2006
Published: November 17 2006 02:00 | Last updated: November 17 2006 02:00
In the 1990s, analysts used to worry that a sudden reversal of the money flowing into US mutual funds could on its own spark a downturn in the market. Judging by this year's experience, they need not have worried.
During the second and third quarters of this year, $18.6bn flowed out of US equity funds. For five months in a row, starting in May, they suffered negative flows, the worst such streak since late 2002, during the most savage bear market since the war. This year, while mutual fund investors headed for the exits, the main US stock indices staged emphatic rallies.
Where did the mutual fund investors' money go? It went beyond American shores. During the middle two quarters of this year, $51.3bn flowed into non-US equity funds, according to the Investment Company Institute, the trade body.
Traditionally, US retail investors regarded "the rest of the world" as a minor adjunct to their portfolios. Last year was the first on record when flows to foreign funds exceeded those to US funds in a year when flows were positive. (There have been times when the industry has suffered outflows and foreign funds have suffered less than US funds.) But last year, US indices were virtually flat and missed out on the party that stock markets across the rest of the world were enjoying. That does not apply this year. So what is going on?
Maybe US retail investors have now got the message about diversification in a globalised world.
Another explanation lies in the weakness of the dollar. In dollar terms, the MSCI World ex-USA index has gained17.6 per cent this year, while its USA index has gained 11.6 per cent. In local currency terms, this difference would disappear - the World ex-USA index is up only 11.1 per cent. And for euro-based investors, the world outside the US has gained8.3 per cent, while the US itself is up only 2.8 per cent.
The weak dollar has already brought a flood of cash to the rest of the world. With yesterday's healthy consumer inflation numbers suggesting that the next move in base rates will be downwards, that flood is likely to continue.
Copyright The Financial Times Limited 2006
Published: November 17 2006 02:00 | Last updated: November 17 2006 02:00
In the 1990s, analysts used to worry that a sudden reversal of the money flowing into US mutual funds could on its own spark a downturn in the market. Judging by this year's experience, they need not have worried.
During the second and third quarters of this year, $18.6bn flowed out of US equity funds. For five months in a row, starting in May, they suffered negative flows, the worst such streak since late 2002, during the most savage bear market since the war. This year, while mutual fund investors headed for the exits, the main US stock indices staged emphatic rallies.
Where did the mutual fund investors' money go? It went beyond American shores. During the middle two quarters of this year, $51.3bn flowed into non-US equity funds, according to the Investment Company Institute, the trade body.
Traditionally, US retail investors regarded "the rest of the world" as a minor adjunct to their portfolios. Last year was the first on record when flows to foreign funds exceeded those to US funds in a year when flows were positive. (There have been times when the industry has suffered outflows and foreign funds have suffered less than US funds.) But last year, US indices were virtually flat and missed out on the party that stock markets across the rest of the world were enjoying. That does not apply this year. So what is going on?
Maybe US retail investors have now got the message about diversification in a globalised world.
Another explanation lies in the weakness of the dollar. In dollar terms, the MSCI World ex-USA index has gained17.6 per cent this year, while its USA index has gained 11.6 per cent. In local currency terms, this difference would disappear - the World ex-USA index is up only 11.1 per cent. And for euro-based investors, the world outside the US has gained8.3 per cent, while the US itself is up only 2.8 per cent.
The weak dollar has already brought a flood of cash to the rest of the world. With yesterday's healthy consumer inflation numbers suggesting that the next move in base rates will be downwards, that flood is likely to continue.
posted by Carlos T Mock @ 2:35 PM
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