Equities Remain a Preferred Asset Class, Lipper Says

(March 13, 2011) — Investors have contributed a net $6.2 billion into US-domiciled equity mutual funds in the week ended March 9, according to Lipper, a unit of Thomson Reuters Corp.

“Since the beginning of the year, equities have been the preferred asset class, to a degree. The inflows into the small-cap sector could be people wanting to maintain some of their equity position,” said Matthew Lemieux, research analyst at Lipper, according to Reuters.

The research showed that within equities, exchange-traded funds accounted for the majority of the inflows, with an estimated $4.68 billion of net new money. Among energy sector funds, Lipper showed that the SPDR S&P Oil and Gas Exploration and Production ETF had the biggest net outflow of cash, $142 million, for the week.

In a recent article in the Financial Post, David Burrows, president and chief investment strategist at Barometer Capital Management, explained that in the past few months, pension funds and private investors have began a broad reallocation to equities from fixed income. Statistics from the Federal Reserve have revealed that pensions have averaged 45% exposure to equities since 1960.

“Markets are all about following the money, and the money is finding its way back into equities, likely in a bid to counter rising inflationary pressures,” Burrows told the news service.

The increasing allocation to equities supports findings from BNY Mellon Asset Management that showed US corporate pension plans in February continued to prosper from the global stock market rally, as the funded status of the typical corporate plan rose 0.4 percentage points to 88%. While assets for the typical plan increased 2.3% in February, US equities rose 3.6% and international equities increased by 3.3%.

Peter Austin, executive director of BNY Mellon Pension Services, the pension services arm of BNY Mellon Asset Management, noted that one approach to drive funding improvement is continued reliance on return-seeking asset classes, such as equities and alternatives, which have continued to gain popularity in 2011. According to the latest quarterly CIO study by KBW analysts, the outlook for active equity has modestly improved, while alternative strategies in particular seem poised to generate new flows.