Posted by admin | Posted in tax day | Posted on 16-04-2012-05-2008
By Michael Aneiro
Muni funds just saw their first net outflow in 18 weeks, but fear not: it’s only people paying their taxes.
That’s the argument being made by muni market pundits on Friday. to back up a bit, late Thursday Lipper reported that muni fund mutual funds and ETFs saw a $57 million net outflow in the week ended Wednesday, the first weekly net outflow in the past 19 weeks. such fund flows tend to be lagging indicators of market sentiment, but can also drive markets when withdrawals (or inflows) snowball, as they did in early 2011, when markets saw 29 straight weeks of weekly outflows totaling nearly $50 billion.
This time market participants aren’t too worried. they note that last week’s outflows were primarily from short-term funds, and when investors pull money from short-term muni funds in April, it’s usually to raise cash to pay income tax liabilities.
“”[W]e are not very concerned about this weak trend of fund flows because it appears to be principally related to seasonal tax time issues,” writes Chris Mauro of RBC Capital Markets on Friday.
Mauro notes that long bond funds actually saw net inflows of $187 million in the week, while intermediate funds posted about $17 million in inflows and the high yield component of the long bond sector reported $120 million in inflows. “Therefore, this week’s small $57 million net outflow figure was actually driven by a much larger $260 million outflow in the short muni space,” Mauro writes. “This indicates, to us, that this week’s fund redemptions were due to investor withdrawals to pay income tax liabilities.”
Mauro adds that since 2000, there have only been three instances in which municipal bond fund flows for the first two weeks of April were significantly positive (in excess of $250 million). in eight of those years, the two-week flows were either negative or minimally positive. Here’s Mauro again:
in the absence of a major credit event or a massive asset allocation shift to equities or taxable fixed income, we expect municipal fund flows to move into positive territory again once tax time is behind us, especially with municipal bond coupon payments and principal redemptions scheduled to build through the late spring and summer months.
Not convinced by Mauro? Perhaps the nearly identical assessment made by Citi strategists George Friedlander, Mikhail Foux and Vikram Rai on Friday will sway you:
In our view, seasonal factors related to Tax Day may be playing a role. it makes sense that shorter-duration funds would be the first liquidated to make tax-related payments. 2011 was a good year for stocks, so there may be some tax payments being made that relate to capital gains and that require something to be liquidated to raise cash. a similar pattern was observed in 2010.
On Friday, the iShares S&P National AMT-Free Municipal Bond Fund (MUB) was up 32 cents to $108.90.