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U.S Equity Funds inflows down 70% in 2022
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U.S Equity Funds inflows down 70% in 2022

Edith Muthoni
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A data presentation shows that U.S. equity fund flows have continued declining. The presentation indicates that funds hit the $48B mark in February. That represents a 70 percent fall from February 2021’s figures. 

TradingPlatforms’ Edith Reads has been observing the Equity Funds’ inflows. She attributes the prevailing situation to two factors.

“Two factors are behind the current situation in the American Equity Funds market,” she observed.” First is the Russian invasion of Ukraine and second the growing anticipation that the FED will raise interest rates. These two have increased uncertainty prodding investors to move their funds to safer investments.”

Equity Funds market looking up?

January 2022 saw outflows amounting to a staggering $23B from prominent growth funds. The last time the funds witnessed such a high level of shedding was in 2017. February backed the trend as investors moved their holding to less risky investments.

The figures were nevertheless a rebound from January’s. Then, the funds were at the lowest they’ve been since the pandemic began. February’s upswing, albeit small, inspires confidence about the short-term future of the funds.

Why are Growth Stocks underperforming

Growth stocks have tended to overperform in environments with falling interest rates. That’s because affordable capital spurs firms to borrow for their expansion purposes. Conversely, rising rates not only pressurize corporate earnings but also equity valuations.

Moreover, Growth funds are prone to volatility when investors cash out their holdings. At the time of writing, the CBOE Volatility index had surpassed the 40% mark.

The winners and losers

Market data indicates that two types of funds had the highest inflows. Large Blend Funds received $38.5B in February 2022. Meanwhile, Large Cap Funds had inflows of $15.8B. In contrast to Growth funds, value funds thrive in rising interest rates environments.

Again, three value-leaning sectors registered the largest fund inflows. The Energy sector recorded the most inflows of $1.7B, buoyed by the escalating gas prices across the U.S. Defensive consumer and natural resources followed suit with $1.0 B and $0.8B, respectively. 

On the flip side, investors moved $1.9B from the technology sector. Today, tech-centric Equity Funds’ have bled about $7B. Most of the investors withdrawing their investments are targeting less volatile assets, including money funds.

February also saw the U.S. equity funds market record another positive. The about $50B that the sector took in was the largest attained by a single category in the country. Again, those inflows dwarfed the $9B that international equities realized collectively.

What’s the significance of fund flows?

Fund flows, also asset flows, are a measure of cash movements within investments. It considers both inflows and outflows out of a particular asset class. It’s important to know that these are not indicative of those investments’ performance.

Many consider fund flows to be indicators of investor sentiment. Consequently, inflows could point to optimism about future returns. On the other hand, outflows may suggest market weariness.

Strong inflows shore up equity funds’ stock prices. That’s because it draws profit-chasers. On the reverse, outflows trigger more of the same. Thus they cause stock prices to fall.

Edith Muthoni

Edith Muthoni

Edith is a finance expert who has been writing and trading for years. She's knowledgeable about stocks, cryptocurrencies, blockchain technology as well the latest fintech trends - all from an informed perspective that will help you make better decisions when it comes time to invest your money.