Fund Flows Pick Up Steam in Q110

During the 12 months since stock markets bottomed in March 2009, worldwide bond and stock mutual fund net inflows eclipsed $1 trillion, about half of which was garnered in the U.S.

Strategic Insight (SI), an Asset International company, said that during the first quarter of 2010, U.S. mutual fund investors put an estimated $123 billion into stock and bond mutual funds.

The net inflows were the best for a quarter since the second quarter of 2009, when long-term mutual funds attracted a similar amount to the quarter just ending, according to SI. The first-quarter figures included long-term fund inflows of about $50 billion in March. Those included $15 billion of net new flows into equity funds and $35 billion of net new flows into bond funds, according to estimates from Strategic Insight’s Simfund database.

“Looking back at prior bear markets, it has taken stock investors 12 to 18 months after a stock market trough to significantly re-engage with equities,” said Avi Nachmany, S.I.’s director of Research, in a news release. “Fund investors may slowly be overcoming their risk aversion and starting to respond to the fact that the average equity fund delivered over 50% return over the 12 months ended in March.”

International and global mutual funds continued to draw investor capital, taking in $28 billion in flows in the first quarter of 2010, as investors with higher risk appetites continued to seek global diversification in their portfolios. International/global funds marked their fourth consecutive quarter of net inflows. While the strengthening U.S. dollar lowered lately the returns of international equity funds vs. U.S. funds during Q1, demand for global diversification should persist, according to SI.

With money-market funds and deposit accounts continuing to provide near-zero yields, investors seeking income alternatives put about $87 billion into bond funds in the first quarter of 2010, including $35 billion in flows in March 2010. Leading the inflows were short- and intermediate-maturity corporate bond funds, with roughly $38 billion in combined net inflows in the quarter.

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