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Equity Funds Post Second-Biggest Week of Flows on Record

Jan. 11 (Bloomberg) -- Investor deposits with global equity mutual funds in the first week of January were higher than any other period except one, a sign they may be coming back to stocks after withdrawing cash for the past six years.

About $22 billion flowed into equity funds around the world in the week ended Jan. 9, according to data compiled by research firm EPFR Global going back to 1996. Emerging-market equity funds took in the most money on record. The MSCI All-Country World Index jumped 3.1 percent in the first week of 2013 and the Standard & Poor’s 500 Index reached a five-year high yesterday on signs the global economy is gaining momentum.

“An improving macro backdrop is causing investors to re-appraise equities,” said Graham Bishop, an equity strategist at Exane BNP Paribas in London. “Equities are well placed to benefit as the recent flow data implies.”

The flows represent a turnaround for investors who have pulled more than $600 billion from mutual funds that invest in American stocks since 2007, according to data from the Investment Company Institute. The worst financial crisis since the Great Depression and the slowest economic recovery since World War II kept individuals from buying stocks, even as the S&P 500 more than doubled since March 2009.

Fund Flows

Investors have piled into less volatile securities during the past six years, adding more than $1.1 trillion to bond funds, based on data from Washington-based ICI. About $150 billion was withdrawn from mutual funds that invest in American stocks in 2012.

The money added to global equity mutual funds only trailed the $23 billion recorded in the third week of September 2007, a month before the S&P 500 reached an all-time high, EPFR data show. U.S. stock funds took in $3.1 billion, the most since EPFR began tracking them in 2000, and emerging-market equity funds absorbed a record $7.4 billion.

The reversal in flows doesn’t guarantee equities will continue to climb, according to Stewart Richardson, who helps oversee about $70 million as chief investment officer at RMG Wealth Management LLP in London. U.S. stocks tumbled 57 percent in the 17 months after the S&P 500 peaked in October 2007.

“To think the only other time when inflows were this strong was September 2007,” he said in a phone interview. “Well, that was not a great time to buy stocks.”

Fiscal Cliff

The S&P 500 is up 117 percent since reaching a bottom in March 2009. The benchmark gauge for U.S. equities climbed 4.6 percent in the first week of 2013 after policymakers reached a deal to avert more than $600 billion in tax hikes and spending cuts.

“Whatever its flaws, the recent deal to stop the U.S. going over the so-called fiscal cliff in early January lit a fire under investors,” EPFR wrote in an e-mailed note today.

Emerging-market stock funds have absorbed cash for 18 consecutive weeks, compared with the record 29-week stretch ended in December 2010, according to a report from Jonathan Garner, the chief Asia and emerging market strategist at Morgan Stanley in Hong Kong.

Funds that invest in developing nations worldwide lured $5.7 billion last week, while Asia funds attracted $1.5 billion. Latin America had about $90 million of inflows and those investing in Europe, the Middle East and Africa attracted about $150 million.

Investors pulling out of American stocks has meant that they missed out on about $200 billion of stock gains, according to data compiled by Bloomberg and Morningstar Inc. through the third quarter of 2012.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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