August Fund Flows Favor Money Market, Fixed Income

Market volatility so far in 2008 may have prompted many investors to flee equities but they apparently haven’t lost faith in mutual funds entirely, according to new data.

A Strategic Insight news release said U.S. investors poured a net $38 billion into mutual funds in August, according to preliminary estimates.

The continued desire for a safe harbor was evident as money market funds and bond funds led the advance while equity funds experienced very modest net redemptions. For the first eight months of 2008, mutual fund cash inflows in the US exceeded $470 billion, according to Strategic Insight.

For mutual fund flows year to date through August, money market funds gained $340 billion while bond fund net inflows reached $114 billion.

Equity funds in aggregate have experienced very modest outflows in 2008, notable because the S&P 500 has fallen more than 14% year to date. There are about $7 trillion held in stock funds industrywide, and an additional $5.5 trillion in money market and bond funds.

Some August fund flow highlights:

  • Bond fund inflows approximated $10 billion in August. Taxable bond funds drew roughly three-quarters of net inflows; tax-free bond funds captured one-quarter.
  • Money market funds experienced net inflows of $30 billion in August, as institutions and individuals sought the benefits of such funds within the uncertain financial markets.
  • Equity fund net outflows totaled an estimated $2 billion in August. US equity fund positive flows totaled some $5 billion, while international equity fund outflows were nearly $7 billion.

“Investment and wealth management remain a cornerstone of the financial industry, especially during volatile times. Mutual funds are the preferred way to save for retirement, in the US, and increasingly, elsewhere. With more than two-thirds of US equity funds assets held within retirement accounts, thus planned to be drawn in 20-30 years, it is no wonder that flows to equity mutual funds remained stable in 2008,” said Avi Nachmany, Strategic Insight’s Director of Research, in the news release.