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Outflow from US equity funds continues

US- US equity funds saw their fourth consecutive month of outflows in September, estimated at $10.5bn (e10.75bn) according to mutual fund research company, Lipper. In July, US equity funds registered $50bn in net outflows, which suggests the rate of net selling in equity funds is slowing.

“While an outflow is an outflow and not good news for money managers, the slowed pace of redemptions during a brutal market decline in September is encouraging,” says Donald Cassidy, senior research analyst at Lipper.

“The much smaller net selling seems to indicate that most holders who could be scared out of their positions by declining prices probably have already departed, leaving few to do so. Investor capitulation has probably run its course,” Cassidy added.

How long it will take for investors to regain their confidence, so that the pattern of moderate traditional net inflows returns remains to be seen, says Lipper. The shock of October 1987 took about 15 months before the market returned to normal.

Of the funds covered by the research, those with an aggressive approach saw the largest exodus. Real estate and gold-oriented funds were the only two sectors to see inflows, reflecting investors’ defensive stance, and the strong performance of the fund types. Large-cap funds suffered the bulk of outflows, shedding $8bn. Small and mid-cap funds lost $1bn each.

With regards to style, growth funds and core funds had the larger outflows, although value funds also saw $2.5bn depart.

By contrast, fixed income funds continued to see inflows in September, taking in $14bn. This brings the 202 inflow total to over $100bn and 12-month total to $125bn. $13bn of September’s inflows were poured into short-term and intermediate-term funds.

Further indicating investors’ defensive behaviour, high yield funds had an outflow of $1.1bn.

Lipper remains confident that confidence in equities will be rebuilt shortly. “If the full month of October can hold or build on the rally seen mid-September, the pressure on investors’ minds may be lifted, with rebuilding of the courage to buy being the next logical step.”

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