Bond Fund Rush Could be Slowing

While November’s mutual fund inflow to fixed income still added up to $33 billion, that was down from the $40 billion pumped into bond funds for each of the three months leading up to November, according to Morningstar.

A news release from the investment research company about its latest reports on mutual fund and exchange-traded fund (ETF) assets indicated that the bond fund inflow falloff could portend a trend toward “investors looking for opportunities beyond fixed income.”

Meanwhile, according to Morningstar, equity investors continued to favor foreign equity funds over domestic equity funds. Net flows were negative for domestic stock funds, while foreign equity funds received more than $5 billion in assets.

Looking at the fund flow by sales channel, Morningstar noted a difference between the direct-sold and the institutional markets. Namely: The institutional market has yielded positive flows in domestic-equity funds every month for the past seven years while, for five months in a row, investors in the direct-sold market have pulled assets out of U.S. equity funds.

Morningstar researchers commented: “This could be partially due to the fact that institutional share classes are often included in defined contribution plans, which have experienced steadier and sticker flows than other channels.”

Vanguard Still Winning

One big winner of late has been The Vanguard Group, according to Morningstar. For five months in a row and the eighth time in 2009, Vanguard’s combined open-end and ETF monthly flows exceeded $10 billion.

These assets have landed mostly in Vanguard’s fixed-income funds, which brought in $5.8 billion during November alone. Another top target is Vanguard Total Stock Market Index, which captured $1 billion in flows in November, and for the year through November has seen $10.2 billion in flows.

Vanguard domestic-equity funds saw $818 million in outflows during November. Among the equity funds losing assets, Vanguard Windsor II has seen outflows every month for the past two years and has lost $1.5 billion in 2009 through November. Right alongside its sibling, Vanguard Windsor has lost $1.4 billion in assets through November of this year.

Fidelity’s Showing

In November, Fidelity saw net outflows for the second month in a row. Most of the assets exited Fidelity’s domestic equity funds, in particular, the large-cap funds. Topping off the list of funds with outflows were Fidelity Equity-Income, Fidelity Magellan, Fidelity Spartan 500 Index, and Fidelity Value, all of which lost more than $200 million in November.

During 2009 through November, Fidelity’s large-cap funds have accounted for $2.9 billion in outflows.

The research is available here.