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Investors have been getting more bullish on US equity markets in January, if data released by Morningstar is anything to go by. The fund data firm announced its January fund flows data last week, which makes for interesting reading. The new administration’s promises of tax cuts and infrastructure spending boosted US equities in December, but in January focus had turned to fixed income and international equity funds.

Some $36 billion flowed into taxable bond and municipal bond funds, although flows into US equity funds remained positive, at $9 billion. However, most of the new investment in US equity funds went into passive funds, exchange traded funds and index trackers. Active managers saw net redemptions.

“Typically, traditional bonds do not perform well in an environment of rising interest rates, yet investors still chose taxable bond funds in the month following the federal interest rate increase in December, with total inflows of $32.2 billion,” Morningstar commented.

Vanguard has dominated the asset management industry in terms of inflows for the past two years and it attracted positive and increasing flows in January while the rest of the industry sank into outflow territory. This further reinforces Vanguard founder John Bogle’s views that low-cost, index tracking funds are the best way forward for the smaller investor.

PIMCO Income saw the biggest inflows among US-domiciled active funds, with $1.6 billion. PIMCO is still recognised by US investors for its lengthy expertise in managing fixed income portfolios.

The Armchair Trader says: It is interesting to note how sentiment can shift so quickly among fund investors. The passive v active argument and the big debate on fund fees has finally come home to roost for many fund managers, and 2016 was a case in point. Many investors were obviously sitting on the sidelines and waiting on the outcome of the US election in November, before committing to US equities in December.

The so-called Trump Rally, however, remains an issue of some controversy. Many very canny investors, not least among them hedge fund manager George Soros, have considerable short positions on US equities. The flows in January – into fixed income and emerging markets – could also reflect a loss of confidence on the part of some investors in the future of Trump’s America. Certainly, an administration that begins to make protectionist noises makes international investors re-think the positioning of their investments.

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Stuart Fieldhouse

Stuart Fieldhouse has spent over 20 years in journalism and financial communications, including six years as a wealth management correspondent for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong.

Stuart has worked as head of content at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Stuart continues to work with hedge funds, private banks, stock exchanges and other financial institutions on their communications, data and marketing requirements.

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