July Has Been The Great Rotation On Steroids For Stock Market Funds

Many observers were taken aback by the record inflows into stock market mutual funds and ETFs in January.

The outsized flows sparked a lot of chatter about a "Great Rotation" out of bonds and into equities, a concept that implied the reversal of a major trend that has seen hundreds of billions of investor dollars flow out of equity funds and into bond funds over the past five years.

Since January, flows into equity funds have been robust, but nowhere near the levels we were seeing in the first few weeks of 2013.

That is, until now. So far, statistics we have for flows into equity funds in July are blowing away those in January.

"Over the first 12 trading days of July (all data here from www.xtf.com, through Wednesday) investors have added $24.4 billion in fresh money to ETFs which track various U.S. stock indices," writes Nick Colas, chief market strategist at ConvergEx Group, in a note to clients. "This is a run rate of just over $2 billion/day, almost four times the pace of money flows into U.S. stocks for the first half of 2013."

Nearly half of that $24.4 billion has gone into a single ETF: the SPDR S&P 500 ETF.

In other words, investors have been putting $1 billion a day into the S&P 500 since the start of July.

"Our contacts in the industry tell us that these inflows are 'Smooth' and not the result of a few chunky reallocations of capital by a handful of accounts," says Colas.

In his note, Colas also highlights the losers:

• Commodity funds are down $1.1 billion in assets from redemption thus far in the month. All of these outflows – and more, really – can be explained with one ETF: the SPDR Gold Trust (GLD), which is down $1.3 billion in assets from “Redeem” transactions.
• Real Estate ETFs have seen $428.9 million in redemptions.
• Emerging markets ETFs have seen $207.7 million in redemptions month to date.
• ETFs which invest in preferred stocks have also had a tough time in the new quarter, losing $203.0 million in assets.
• Leveraged and inverse products are also net losers in the month, with redemptions of $458 million and $443 million respectively.
• While most industry sector ETFs are getting healthy inflows, products which focus on Consumer non-Cyclical stocks lost $358 million in assets from redemptions over this July-to-date.

The S&P 500 is up 5.1% so far this month.