January's "Great Rotation"

Fund Outflows? Blame the 'Cliff'

The first few weeks of 2013 have seen a stark shift in investor attitudes in favor of stocks, a trend being dubbed the "Great Rotation," that has helped push U.S. benchmarks to around five-year highs. So far this month, investors have added a net $55 billon to stock mutual funds and exchange-traded funds—a monthly record—according to TrimTabs Investment Research.

... In the fourth quarter, contentious negotiations in Congress to avert looming spending cuts and tax increases cast a pall over the stock market, driving the Standard & Poor's 500-stock index down 1% and causing investors to pull their money out of the stock market. That hurt results even at historically strong performers like T. Rowe Price.

... Across all types of T. Rowe Price funds, investors pulled a net $4.2 billion in the fourth quarter, its first quarter of net outflows since the third quarter of 2011. Assets under management still inched up 0.4% to end the quarter at $576.8 billion, as $6.6 billion in market gains offset the fund withdrawals. Institutional accounts outside the U.S. were responsible for a large chunk of outflows, losing a net $3.8 billion. But T. Rowe's mutual-fund business also took a rare hit, seeing a net $1.4 billion withdrawn from its stock and blended-asset funds.

... Waddell & Reed also saw investors flee its mutual funds in the fourth quarter, although at less of a degree than some analysts expected. The company reported fourth quarter outflows of $165 million, far less than the $400 million Sandler O'Neill analyst Michael Kim was expecting, for instance.
Comment: Explains the strong January in the stock market


  1. Individual Investors Help Drive Stock Surge

    Small investors are jumping back into the stock market after abandoning it during the financial crisis.

    The return by individual investors is a big reason why the Dow Jones Industrial Average is pushing toward an all-time high. On Tuesday, the Dow rose 72.49 points to 13954.42, its highest close since October 2007. The Dow has surged 850 points in January, a 6.5% gain, marking its best start to a new year since 1989.

    Big and small investors breathed a sigh of relief when Congress and the White House worked out a deal to avoid the worst of the so-called fiscal cliff, and some hedge funds and traders unwound bets that stocks would fall because of the year-end expiration of tax cuts and fiscal stimulus.

  2. 2/1 WSJ: Stocks' Draw Is Biggest Since 1996

    Stock mutual funds and exchange-traded funds saw their biggest four-week influx of cash since 1996 in the four weeks through Jan. 30, according to preliminary data from mutual-fund tracker Lipper Inc. Over that time, investors sent a total of $34.2 billion into stock mutual funds and ETFs. That is almost twice as much as during January 2012 and more than the net pickup for all of last year, according to Lipper.

    Lipper tracks mutual funds and ETFs, both of which are popular investment tools with individual investors, and its statistics are widely regarded as a gauge of sentiment.

    A change appears to have started late last year, according to Lipper's weekly data. In December, investors added $10 billion to stock mutual funds and exchange-traded funds and pulled a net $169 million from corporate and municipal bond funds. In November, investors added $1.8 billion to stock funds, while bond funds picked up $12 billion.

    Investors and strategists are watching to see if the move is the start of a rotation out of bonds and into stocks. Wall Street strategists predict lower returns for bonds this year than they enjoyed in 2012.


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