Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Microsoft Inflow


Microsoft (MSFT:NASD) will pay a special dividend to shareholders of $33 billion. Much has been discussed as to the impact this will have (or in my opinion has already had) on the market. So here is my take on things.

$3 billion or so will go directly to index funds that own the stock. This will (if it hasn't already) go directly back into the SPX.

That leaves $30 billion. My guess is that half of that will go first to money market funds and then maybe make it back into stocks over time. But I think it is a pretty good guess that this amount will not have any near term impact on the market. But this is the wild-card.

That leaves $15 billion. First of all through dividend re-investment, a good portion of this may go right back into MSFT stock. But let's ignore that for the sake of the bulls on the market.

UBS just reported that mutual fund cash is now at a new all-time low of 3.9% of assets down from the previous all-time low of 4%. If mutual fund managers just want to get that number back up to 4% that would eat up $7 or 8 billion or half of the remaining amount. If they wanted to get it up to a "conservative" (being facetious here), it would eat up the entire amount.

So if mutual fund managers want to put the entire amount back to cash to bring that level up to a paltry 4.1% then the impact is negligible.

If mutual fund managers want to put half in cash (assuming they have a semblance of rationality) and half into the market, we should expect $3 billion from index funds and $7 billion or so from mutual funds equaling around $10 billion.

To put this in perspective, the average monthly inflow this year is $19 billion.

Now people are comparing this situation to AT&T Wireless (AWE:NYSE) thinking that all this buying will be done in a short period of time. But this situation is much different: AWE did not announce an ex-date until very late where we have known for months that MSFT was going ex-dividend 11/15.

So we must assume that the reason mutual fund managers brought down their cash levels recently is because they expected this inflow. So again assuming that they are rational beings, a stretch I admit, we will see at least half if not all go back into cash. And if you know anything about index funds, you know if they are certain of an inflow (which they are in this case, they would be putting that money to work over a linear period of time.

So I think a lot of the buying has been done by those that expect to receive inflows and more importantly, by those that expect others to.
< Previous
  • 1
Next >
position in AWE

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos