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What market volatility? Equity funds climb in third quarter

Leslie Shaffer | Writer for
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Stock markets globally may have suffered a rocky third quarter, but investors pouring money into equity funds came out broadly in the green, data from Lipper Research show.

For the third quarter, 89 out of 95 equity and mixed-equity mutual fund segments posted gains, Lipper data showed, with equity funds gaining 7.32 percent on average, marking a fifth consecutive quarter of gains.

Despite concerns over potential U.S. military action in Syria and expectations the Federal Reserve might soon begin tapering its asset purchases, world equity funds were the best performers out of four broad macro classes, climbing 8.46 percent for the quarter, followed by U.S. diversified equity funds, up 7.31 percent, the report said.

(Read more: US equity funds see highest-ever inflows in July)

However, not all funds were winners; funds dedicated to selling stocks short dropped 12.83 percent in the quarter, while Indian region funds shed 7.79 percent and real-estate funds slipped 2.64 percent, it said. But there was some bounceback in the quarter's final month, with Indian-focused funds adding 9.85 percent in September.

Investors collectively shrugged off some markets' wild summer swings, putting a net $88.8 billion worth of assets into conventional mutual funds in the quarter, preliminary data show. Equity exchange-traded funds, or ETFs, took in a net $46.4 billion, it said.

Around $42 billion was pulled out of taxable fixed income funds and municipal bond funds, while around a net $800 million flowed out of municipal-debt ETFs, it said.

(Read More: So much for that pullback idea: Stocks keep climbing)

Use market volatility to buy: Pro

The winning streak for equity funds may not be over yet.

"Shares are at risk of hitting a speed bump in the month ahead," said Shane Oliver, head of investment strategy at AMP Capital, in a note. But he added, "Any pullback is likely to be just another bull market correction which should be seen as a buying opportunity as the broad trend in shares remains up. Valuations remain reasonable, monetary conditions are set to remain easy, and profits are likely to improve next year."

Equities may also get a seasonal boost.

(Read more: Syria talks could decide fate of stealth stock rally)

"Significant fourth-quarter seasonal strength may loom globally as both U.S. and foreign stocks have historically posted their best performances late in the year," said Alec Young, global equity strategist at S&P Capital IQ, in a note.

While emerging markets have faced volatility recently on concerns that the Fed's eventual tapering moves would lead to outflows from those markets, Young noted emerging markets have historically led the fourth-quarter trend by a large margin.

The S&P 500's average monthly gain in the fourth quarter is 1.3 percent, dating back to 1945, compared with an only 0.7 percent average gain overall, while the MSCI Emerging Market Index's average monthly gain for the fourth quarter is 1.9 percent, compared with its 1.0 percent average monthly gain overall, based on data since the index's 1988 launch, Young said.

—By's Leslie Shaffer. Follow her on Twitter @LeslieShaffer1