$13B Yanked from Mutual Funds in May

Investors responded to worrisome economic events in May by yanking $13.2 billion from equity funds.

Morningstar data showed that while money-market funds also saw May outflows, the size of those outflows declined considerably, suggesting that some of the money exiting equity funds sought safety in money-market accounts. The $20.6 billion in money fund redemptions in May was roughly 20% of the average outflow experienced so far this year.

Almost $15 billion left U.S. stock funds in May for the largest monthly outflow since March 2009—the month that marked the beginning of the market recovery.

The European economic woes brought an end to a long streak for international stock funds. After 13 straight months of steady inflows, the asset class saw redemptions of almost $6 billion in May, according to Morningstar.

Meanwhile, bond funds maintained positive flows for the month, but enthusiasm for the asset class cooled considerably. Taxable bond funds took in just $4.8 billion. That dwarfs the results seen in recent months and is the smallest monthly inflow since August 2008, Morningstar said.

While most bond categories saw positive flows in May, high-yield bond funds had to deal with massive redemptions. All but 34 of the 146 funds in the group registered outflows in May. By the end of the month, $6.3 billion had left the category, which is the largest monthly outflow since Morningstar records began in 1998.

Morningstar said at the opposite end of the spectrum, short-term bond funds attracted $4 billion in new cash. That category has experienced strong and steady inflows since the beginning of 2009. That year, short-term bond funds took in a record $50.5 billion, and they appear to be on track to meet or exceed that record in 2010, with $23.1 billion in inflows through the first five months of the year.

The Morningstar report is at http://www.global.morningstar.com/mayflows10.