Money flows

Record USD77.4bn pours into equity mutual funds and ETFs in January

An all-time record of USD77.4bn flowed into all US-listed equity mutual funds and exchange-traded funds in January, according to figures released by TrimTabs Investment Research.

“Investors kicked off the New Year in a highly exuberant mood,” says David Santschi, chief executive officer of TrimTabs.  “The inflow in January smashed the previous record of USD53.7bn in February 2000, which was just before the technology stock bubble burst.”

In a research note to clients, TrimTabs explained that USD39.3bn flowed into US equity mutual funds and ETFs, while USD38.1bn flowed into global equity mutual funds and ETFs.  Both of these inflows were the highest on record.  The previous record for US equity funds was USD34.6bn in February 2000, while the previous record for global equity funds was USD27.1bn in January 2006.

“These record inflows should make contrarians very nervous,” says Santschi. “Big inflows from fund investors have historically coincided with market tops. Note that four of the top ten biggest inflows were in early 2000.”

TrimTabs points out that there is no way to know exactly what drives flows at any given time. But it reported that inflows did not slow late last month, suggesting the buying was driven by optimism about the markets as much as by investments of bonus money or reinvestments after tax-related stock sales late last year.

“The Federal Reserve is creating about USD4bn in new money every business day, and even a few Fed officials are concerned that this money printing is blowing up asset bubbles,” says Santschi. “Investors need look no further than the equity markets to find lots of froth.”

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