to the price movement in the domestic equity market. The following analysis looks at this
topic in addition to some other useful observations including seasonality, historical net new
cash inflows, taxable bond funds, corporate spreads, and treasuries.
The following graph displays the seasonality in total equity mutual fund flows. January, April,
and November appear to be key months for “money on the sidelines”. However, isn’t there a
seller for every buyer?
$20,000
$ $15,000
M
i
l
$10,000
l
i
o
n
s $5,000
$0
($5,000)
January February March April May June July August September October November December
The following graph(s) displays the relationship between cumulative new inflows and the price
of the SP 500 for 2008 and 2009. A couple of telling observations: 1. From May 2008 to
November 2008, the SP 500 declined 36.0% on outflows of $195.2B, 2. From March 2009 to
November 2009, the SP 500 rose 37.3% on inflows of $37.1B. The SP 500 had an equal-
percentage rise in price on 19% of the cash-flow. Perhaps the best adjectives to describe this
phenomenon include “street-driven-affair” and “courtesy of the taxpayer” however, “broad
participation” and “on behalf of the taxpayer” are not appropriate.
Total Equity Mutual Fund Net New Cash v SP 500
2008
Source Data: Investment Company Institute
$0
1450
($50,000)
1350
$
1250
M ($100,000)
i P
r
l
i
l
1150 c
i
e
o ($150,000)
n
s
1050
($200,000)
950
($250,000) 850
01/01/08 02/01/08 03/01/08 04/01/08 05/01/08 06/01/08 07/01/08 08/01/08 09/01/08 10/01/08 11/01/08 12/01/08
2008 SP 500
1150
$10,000
1100
$0
1050
$
M 1000
($10,000) P
i
r
l
950 i
l
c
i
($20,000) e
o 900
n
s
850
($30,000)
800
($40,000)
750
($50,000) 700
01/01/09 02/01/09 03/01/09 04/01/09 05/01/09 06/01/09 07/01/09 08/01/09 09/01/09 10/01/09 11/01/09 12/01/09
2009 SP 500
Taxable bond funds have some interesting seasonality as well. This does a good job of
explaining the price action of December 2009. Perhaps the seasonality follows the timing of
coupon payments?
$7,000
$6,000
$
$5,000
M
i
l
$4,000
l
i
o
n $3,000
s
$2,000
$1,000
$0
January February March April May June July August September October November December
The marginal effect on 5-year treasury yields appears to have dissipated in 2009 relative to
2008.
$70,000
3.50
$60,000
$ 3.00
$50,000
M
i Y
i
l
$40,000 2.50 e
l
l
i
d
o
n $30,000
s 2.00
$20,000
1.50
$10,000
$0 1.00
1/1/2008 2/1/2008 3/1/2008 4/1/2008 5/1/2008 6/1/2008 7/1/2008 8/1/2008 9/1/2008 10/1/2008 11/1/2008 12/1/2008
2.90
$250,000
2.70
$ $200,000 2.50
M
i Y
2.30 i
l
$150,000 e
l
l
i
d
o 2.10
n
s $100,000
1.90
$50,000
1.70
$0 1.50
1/1/2009 2/1/2009 3/1/2009 4/1/2009 5/1/2009 6/1/2009 7/1/2009 8/1/2009 9/1/2009 10/1/2009 11/1/2009 12/1/2009
Taxable Bond Mutual Fund Net New Cash v Baa Spread to 10-Yr UST
2008
Source Data: Investment Company Institute, Federal Reserve
$80,000 700.00
$70,000
600.00
$60,000
500.00
$
$50,000
M S
400.00
i p
l r
$40,000
l e
i a
300.00
o d
n $30,000
s
200.00
$20,000
100.00
$10,000
$0 0.00
1/1/2008 2/1/2008 3/1/2008 4/1/2008 5/1/2008 6/1/2008 7/1/2008 8/1/2008 9/1/2008 10/1/2008 11/1/2008 12/1/2008
Taxable Bond Mutual Fund Net New Cash v Baa Spread to 10-Yr UST
YTD November 2009
Source Data: Investment Company Institute, Federal Reserve
$300,000 600.00
$250,000 500.00
$ $200,000 400.00
M S
i p
l r
$150,000 300.00
l e
i a
o d
n
s $100,000 200.00
$50,000 100.00
$0 0.00
1/1/2009 2/1/2009 3/1/2009 4/1/2009 5/1/2009 6/1/2009 7/1/2009 8/1/2009 9/1/2009 10/1/2009 11/1/2009 12/1/2009
It appears as though “the street” is in charge of the marginal move in equity, rates, and
spreads going forward. Somehow, didn’t we know this to start with?