Investors came back to funds for the first time since last summer.
Fund investors returned to the markets in a big way in January, according to estimates by Morningstar Market Intelligence. After pulling $40 billion in December, investors sunk $8.3 billion (net) back into mutual funds in January. The figure excludes ETFs, money markets, and funds of funds. ETFs added an additional $2 billion.
It could be that a strong December was a signal to get back in or that investors and their advisors bought after doing tax-loss selling in December.
Flows are rarely causes of market performance but are instead laggards, telling you where the market has been. That was true in January as investors followed a strong December by adding money, though equity markets still sold off.
Most dramatic was the swing in equity funds. Investors bought a net $5.9 billion of domestic equity funds following a huge $12 billion redemption in December. Foreign equity funds swung from an $18 billion net redemption to about $2 billion in net purchases.
The three best-selling categories were large blend, foreign large blend, and high yield, which registered net inflows of between $2 billion and $4 billion. A strong theme there was inflows into equity index funds, which continue to gain in popularity. Vanguard Institutional Index Fund
Meantime, investors also returned to municipal bond funds--it was the first time since August that they registered net inflows. Likewise, alternative asset funds--a group that includes precious metals and long-short--swung from redemptions to a $1.4 billion net inflow.
Taxable bond funds and balanced funds continued to suffer redemptions in January, though the pace slowed a bit. Taxable bond funds shed about $3 billion compared with $3.8 billion in December. Balanced funds shed about $850 million compared with $4.5 billion in December net redemptions.
For high yield, it was the second month in a row of inflows following a long stretch of redemptions. Vanguard High Yield Corporate