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Schwab Trades Up On Improved Investor Sentiment

Charles Schwab’s daily average trades were up 28 percent month over month in January, as investors poured money back into equity mutual funds.

Charles Schwab’s daily average trades were up 28 percent month over month in January, as investors poured money back into equity mutual funds. Trading volume increased 10 percent over January 2010.

“Retail investors are definitely more engaged, and sentiment is better given strong recovery in the markets during the fourth quarter,” said Mark Lane, group head for financial equity research at William Blair & Co.

Schwab reported $6.4 billion in net new assets during the month, down 44 percent from December’s $11.4 billion in new assets. The January figure includes a $2.1 billion outflow related to the departure of a mutual fund clearing services client, which likely had nothing to do with Schwab’s performance, said Michael Wong, equity analyst at Morningstar.

If you don’t account for the mutual fund clearing services client, Schwab brought in $8.5 billion, making January one of the top 10 months in terms of net new assets over the last two and a half years, Wong said. Brokerages sometimes leave large custodians when they decide to perform services themselves that they had previously outsourced to the custodians, he added.

Schwab attributed the boost in trading activity to a seasonal rise in Schwab Mutual Fund OneSource transactions. But Wong believes the mutual fund flows provide further evidence of a continuing increase in risk appetite.

In January, flows into equities were up from December in every category, while the month saw an outflow from money market funds. January flows to large-cap equity funds were $538.4 million, compared to $81.8 million in December. January also saw $592.1 million go into international equity funds, compared to $379.6 million in December. Meanwhile, money market funds had an outflow of $666.7 million, while $2.85 billion went into these funds in December.

“These are material inflows into equities,” Wong said.

If the economy continues to improve and slightly affluent, long-term investors continue to gain confidence, this could offset the overall stock market volatility, Wong said.

With the Standard & Poor’s 500 Index performing well at the moment, “you would think people are looking at those types of equities,” said Alois Pirker, research director at Aite Group.

Pirker was not surprised to see more inflows than there were outflows last month, as investors are becoming more active and getting off the sidelines. Schwab’s total client assets were $1.59 trillion at the end of January, a 13.8 percent year-over-year increase and a 1.3 percent gain from December.

According to Pirker, Schwab has been on-boarding assets pretty nicely and growing its market share consistently throughout the crisis.

“Ultimately, they’re taking away assets from the full-service space,” Pirker said.

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