Mutual fund shareholders continued to take a conservative approach to investing last month, possibly reacting to the threat of going over the "fiscal cliff."
Investors pulled cash out of stock funds in November for the ninth consecutive month, fund industry consultant Strategic Insight said on Thursday. Bond funds attracted new cash for the 15th month in a row.
A net $16 billion was withdrawn from U.S. stock mutual funds in November, slightly more than the amount pulled out in the previous month. The last month that deposits exceeded withdrawals was February. Year-to-date, net withdrawals total $70 billion.
Bond funds are a more conservative investment option than stock funds, with less potential for sharp gains or losses. They have attracted new cash each month since September 2011, and last month's bond fund intake was $23 billion.
Avi Nachmany, research director with New York-based Strategic Insight, said deficit-reduction talks between Congress and President Barack Obama may have contributed to last month's cautious investing behavior. Unless a deal is reached to avoid going over the so-called fiscal cliff, wide-ranging tax increases and spending cuts will automatically be triggered in less than three weeks.
If a deal emerges, "investors would increase their use of mutual funds during 2013 and in the years to come," Nachmany predicted.
Fund investors have been rewarded with strong returns this year. Stock fund returns averaged more than 13 percent through November, with bond fund returns averaging more than 8 percent, Strategic Insight said. As a result, stock and bond fund assets have appreciated in value by more than $1 trillion this year to $8.9 trillion.
Here are more details about how investors moved their money in November, according to Strategic Insight:
STOCK FUNDS: Last month's net withdrawal total of $16 billion from U.S. stock funds was up from the $15.2 billion pulled out in September. A net $1 billion was withdrawn last month from funds primarily investing in foreign stocks. Year-to-date, flows into international funds have been positive, with net deposits of $31 billion.
BOND FUNDS: November's net deposits of $23 billion were down from $29.7 billion that came in during October. Last month's total came mostly from taxable bond funds. Those funds, which primarily invest in corporate bonds, attracted a net $18 billion. An additional $5 billion was deposited into municipal bond funds, which invest in bonds issued by state and local governments. Year-to-date, bond funds of all types have attracted $305 billion in new cash, exceeding the full-year totals from 2011 and 2010. Strategic Insight says net deposits into bond funds have topped $1 trillion since the 2008 financial crisis.
EXCHANGE-TRADED FUNDS: Investors in November deposited a net $14 billion into ETFs, which bundle together investments in a particular market index. That's up from $2.9 billion in October. A net $4 billion was deposited last month into ETFs investing in U.S. stocks, while a net $5 billion was added to foreign stock ETFs. Another $5.5 billion was added to ETFs investing in bonds.
Over the first 11 months of the year, net deposits into all ETFs total $152 billion. It's the sixth-consecutive year that ETFs have attracted more than $100 billion in new cash. Unlike mutual funds, ETFs can be traded during daily sessions just like stocks. They continue to grow much faster than mutual funds. However, assets in mutual funds are still about seven times larger than the total in ETFs, excluding money-market mutual funds.
MONEY-MARKET FUNDS: A net $72 billion was deposited into these funds in November, their highest monthly intake since December 2008, during the financial crisis. Money-market mutual funds are designed to be safe harbors where investors can temporarily park cash and quickly access it when needed. Yet their appeal has been reduced because returns have been barely above zero — they're now averaging 0.02 percent — for about three years. Money fund returns are closely tied to interest rates, which are ultra-low because the economic recovery remains fragile.