The cascade of cash washing into municipal bond mutual funds all year picked up again last week, suggesting the dip in new money in mid-October may have been a blip.
Investors bequeathed $982.8 million to muni funds during the week ended Oct. 28, according to Lipper FMI.
The weekly inflow — which was higher than 97% of the weeks since Lipper and its predecessors started tracking this data in the early 1990s— raises an important question: did the lighter flows of the previous two weeks establish a new trend or mark a brief deviation from the existing one?
The trend all year has been inarguable: cash and plenty of it.
The industry's roughly 640 funds have reported $67.37 billion in new money from investors this year, an average of $1.57 billion a week.
The industry until this year has never recorded a weekly average that high over any four-week period, let alone over 10 months.
Supplementing the new money with more than $40 billion in market gains, the industry's assets have mushroomed by a third this year, to $455.45 billion.
Three weeks ago, the trend stalled. Lipper posted a $616 million inflow for the week ending Oct. 14, and a $606.2 million inflow the week after that.
The numbers from the Investment Company Institute were even worse — they showed weekly inflows of $363 million and $534 million.
While these figures are robust by historical standards, they signaled a slowdown from the past few months.
Funds had reported an average of nearly $3 billion of new money a week for the previous six weeks, according to Lipper.
"We were on a record pace year-to-date," said Ashton Goodfield, who co-manages the $3.8 billion managed municipal fund, among others, at DWS Investments. "Maybe it was just hard to sustain such a strong pace that we had. But the flows, even though they dipped a little bit, were decent flows."
Matt Fabian, managing director at Municipal Market Advisors, had begun to wonder whether such a fierce tidal wave of money could really be a sustainable trend, or whether this was a temporal boon.
He pointed out the money coming into muni mutual funds corresponded closely with the money coming out of tax-free money market funds, which are short-term safe havens.
Investors have been running away from this product because yields are so puny. The average tax-free money market fund yields just 0.05%, according to iMoneyNet, an all-time low.
Tax-free money market funds have bled almost $80 billion this year, according to ICI.
Many mutual fund managers believe the money flooding the industry this year has come from the money fleeing money market funds.
Although the flow of new money may have picked up, last week was difficult for muni funds for a different reason.
Funds reported more than $1 billion in market losses amid a sell-off in municipals.
The Bond Buyer 40 municipal bond index has slipped in the past three weeks from higher than 116 to 111.8, during which time funds have recorded losses of nearly $6 billion.
