The Markets September 14, 2010

Equity Outflows Continue in August

Long-term fund flows increased by more than 11% in August versus July, and once again the lion's share went to fixed-income funds, according to the Morningstar Direct Fund Flows Update.
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Taxable bond funds attracted $24.6 billion in new money for the month, and municipal bond funds took in another $5.2 billion. Taxable bond funds have now taken in $168.4 billion for the year to date. Alternative strategies took in $3.1 billion in August.  

Intermediate-term bond funds dominated once again, taking in nearly $11.1 billion for the month, with multisector bond and world bond funds coming in a distant second and third ($3 billion and $2.7 billion, respectively). Emerging markets bond funds remain popular, with $1.1 billion in inflows. Category assets have now reached $32 billion versus $15 billion 12 months ago.  

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On the other hand, even though the long-term bond and long government categories have enjoyed strong returns, inflows remain modest, Morningstar said. These two categories absorbed $191 million and $157 million last month, respectively.   

Meanwhile, the relentless outflows continued for U.S. Stock funds, as another $14.3 billion headed for the exits. During the past four months alone, these funds have lost a combined $48.9 billion.  

Large-growth and large-value funds are taking the brunt of investor discontent. These two categories surrendered nearly $8.6 billion in August and a combined $38.3 billion for the year to date, according to Morningstar data.  

After enduring mostly outflows since early 2009, money market funds took in $11.8 billion in August. Taxable money market funds collected more than $18.5 billion during the month, while tax-free funds saw $6.7 billion in outflows.  

PIMCO continues to lead the fund sales chart, taking in $7.7 billion in August, thanks to PIMCO Total Return’s robust $5.2 billion haul. PIMCO Fundamental Advantage Total Return and PIMCO Unconstrained Bond took in about $1 billion each.  

Vanguard posted inflows of $4 billion for the month. Total Stock Market and Total Bond Market continued to be the most popular offerings.  

On the other end of the spectrum, American Funds continued to bleed money, with nearly $5.5 billion walking out the door. Growth Fund of America absorbed the worst hit, seeing $1.6 billion in outflows. Fidelity also continues to suffer, with nearly $1.6 billion in outflows for the month.  

 

The Markets September 14, 2010

Bond Funds Still Strong Performers in August

Driven by ongoing demand for bond funds, U.S. mutual fund investors added about $20 billion in net new cash to U.S. stock and bond mutual funds in August 2010.
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A news release from Strategic Insight (SI), an Asset International company, said the August net inflows were a slight improvement over the $19 billion of net new flows seen in July.

Bond funds experienced net inflows of $31 billion in August, as investors continued to demand short- and intermediate-maturity bond funds for alternatives to low-yielding cash vehicles, and general bond funds as less volatile means of participating in global financial markets, according to SI. Bond fund flows in August were led by corporate intermediate-maturity bond funds and global general corporate bond funds. Overall, taxable bond funds drew roughly $26 billion in net investments in August and muni bond funds attracted $5 billion.

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SI data shows net inflows to bond funds totaled $197 billion (not counting additional inflows to bond ETFs and bond VAs funds) in the eight months through August. In comparison, the same universe of bond funds drew $205 billion of flows in the first eight months of 2009, on their way to a record $350 billion in flows for the entire year.

Part of bond funds’ appeal lies, too, in their outperformance this year; total return on the average taxable bond fund was 6.8% in the first eight months of the year, topping the -3.3% total return of domestic stock funds, SI said.

Ongoing stock market volatility and economic and employment uncertainty – including market declines in August – continued to dampen demand for equity funds. As a result, equity funds saw modest net redemptions of $11.5 billion in August, according to Strategic Insight’s Simfund database.

These outflows represented less than 0.1% of equity fund assets, and an even smaller portion of the $7.2 trillion invested in U.S. stock and bond funds. U.S. domestic equity funds saw net outflows of just over $12 billion. Meanwhile, U.S.-based international/global equity funds enjoyed net inflows of nearly $700 million, attracting a portion of some investors’ growth-oriented capital.

“Risk-averse investors are not yet willing to commit to domestic equity funds because the slow economic recovery hasn’t inspired enough confidence. We may not see consistent inflows to U.S. stock funds until unemployment eases and economic growth sparks higher interest,” said Avi Nachmany, SI’s Director of Research, in the news release.

More information about SI is at www.sionline.com.

 

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