Investors in what have historically been the most conservative mutual fund asset classes were actually the most spooked into making withdrawals during the first quarter’s Covid-related market volatility, according to new research from Dalbar.

The average fixed-income fund investor was the most aggressive withdrawer of assets among all average investors, withdrawing over 5% of their assets, according to Dalbar’s new “Quantitative Analysis of Investor Behavior” report that examines investor behavior in the first quarter.

Target-date fund investors also withdrew assets in March, making that month one of only four months since the turn of the century when target-date fund investors actually withdrew net assets.

The market uncertainty in early March led to historic daily losses that were recovered partially before the end of the first quarter. Nonetheless, the average equity-fund investor lost 21.9% during the quarter, an underperformance versus the 19.6% drop in the S&P 500 Index.

All sector funds experienced net outflows, with the exception of precious metals. The financial, consumer, natural resource and health-care sectors saw the greatest outflows, Dalbar found.

“The Average Equity Fund Investor did not stand on the sidelines during the turmoil at the end of the first quarter, but the money movement stayed primarily within equities,” Dalbar said in its report, which is designed to show the effects of investor decisions to buy, sell and switch into and out of mutual funds over short- and long-term time frames.

Equity investors did take a small net amount of equities off the table during the first quarter, but the pattern was similar to the previous months. In January, the average investor withdrew 0.34% of equity assets, which was the same general level of withdrawals that were seen the previous October and November, Dalbar found.

In reality, cash flows out of active equity funds were high, but greatly offset by the fact that net inflows continued for equity index funds throughout the quarter.

“The velocity of money movement in March skyrocketed, but while withdrawals and exchanges out of equity funds nearly doubled, so too did contributions and exchanges into equity funds,” Dalbar said.

From a dollars’ perspective, the average equity fund investor with a hypothetical $100,000 equity portfolio withdrew $745 in the first 3 months of 2020, while losing an additional $21,771. This left the average equity fund investor with an ending balance of $77,484, according to Dalbar.

A hypothetical buy-and-hold strategy of $100,000 earning the return of the S&P 500 would have yielded an account balance at the end of the quarter of $80,402, for a loss of $19,598.

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