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.

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.

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