Bond Funds Still Golden in March

U.S. investors poured $47.5 billion into mutual funds in March, bringing total net inflows for the first quarter to $125.2 billion, Morningstar reported.

Investors continued to favor bond funds over stock funds by a sizable margin, which Morningstar said has been the case for 27 months. Fixed-income funds gathered $88.5 billion in the first quarter of 2010 and $396.1 billion over the past 12 months.

Flows into U.S. stock funds turned positive in March, after registering outflows in February. However inflows for the first quarter came to $1.6 billion in spite of the broad U.S. market rally.

Morningstar said International stock funds collected $19.7 billion for the quarter, representing the asset class’s strongest quarterly inflow since the fourth quarter of 2007.

Investors also pulled $148.2 billion out of money-market funds in March. In the first quarter, $324.4 billion exited money markets, representing the largest quarterly outflow since Morningstar has been keeping records.

Large Growth and Value Funds

Large growth and large value saw the most redemptions of any Morningstar category, with outflows of $16.4 billion and $13.1 billion, respectively. Yet both categories staged impressive rallies, gaining 50% and 48%, respectively, over the trailing 12 months. Similarly, moderate-allocation funds gained 37% over the past year, yet they saw redemptions totaling $9 billion. World stock funds rallied 53.5% over the one-year period, but outflows reached $3.8 billion.

According to Morningstar analysts, investors essentially ignored U.S. stock funds, despite the fact that most broad market indexes were up around 50% for the period. Over the past 12 months, U.S. stock funds registered outflows of $1.7 billion. However, passive equity funds managed to gather assets over the period, while active funds lost ground.

The report said passively managed long-term U.S. stock funds (excluding sector and leveraged funds) took in $24.4 billion over the past year, while actively managed rivals saw $27.6 billion in outflows. That result was partly due to the strong presence of Vanguard Total Stock Market Index Fund, which collected $11.2 billion in assets over the past year, making it the most popular U.S. equity fund. Its closest competitor was also an index fund, Vanguard Institutional Index, which took in $3.8 billion in assets over the past 12 months.

The popularity of The Vanguard Group’s funds has been very apparent lately, Morningstar said. Five of the 10 funds with the most inflows for the quarter were Vanguard funds: Total Stock Market, Total Bond Market, Short-Term Investment Grade, Total Bond Market II (an underlying target-date fund), and Inflation-Protected Securities.

The Morningstar report is available here.