Wednesday, February 6, 2013

The Great Rotation

For years now, domestic stock funds have been hemorrhaging money as investors have sought the safer haven of bond funds. But now that seems to be turning around, in what some financial pundits are calling "The Great Rotation." After equity funds lost more than $350 billion in net outflows for 2012, they took in $29.9 billion in the first three weeks of January. By comparison, bond funds took in $28.1 billion over that same period, which shows that investors may finally be developing some confidence in this market.

Overall inflows into mutual funds of all types have reached a new high as well. Long-term funds took in $64.8 billion in the first three weeks of January; unless those numbers seriously reverse themselves, we will break the monthly record set back in May 2009, when net inflows into funds reached $52.6 billion.

Will any of this matter to investors? It could very well have a practical effect on the market. If there is more money being invested in the stock market, it stands to reason that that could help drive up stock prices.

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