Funds See $44B Asset Influx in July

The recent market uptick continued to benefit U.S. mutual fund flows in July as investors poured almost $44 billion ($171 billion year to date) into fund offerings, Morningstar reported.

A Morningstar news release about its latest fund flow data showed assets flowed into U.S. and international stock funds in July, with inflows of $3.6 billion and $5.5 billion, respectively—accounting for 21% of the July asset buildup.

Morningstar said investors continued to overwhelmingly favor taxable bond funds, and the PIMCO Total Return fund remained a big winner in that group. Taxable bonds took in $26 billion in July, and almost half went to intermediate-term bond funds.

So far this year, the Morningstar intermediate-term bond category has seen almost $65 billion in inflows, which is more than twice the amount of inflows during the same period last year, according to the news release.

Although intermediate-term funds have accounted for 45% of fixed-income flows for the year to date, investors have also shown an appetite for the short end of the yield curve recently. This trend has largely worked in Vanguard’s favor.

Morningstar said on the taxable side, investors have poured almost $22 billion into the short-term bond category year to date, which is 10 times the flows the category experienced by this time in 2008. Vanguard Short-Term Investment-Grade is by far the leader of this category and is well ahead of its nearest competitor in terms of both flows and total net assets.

So far in 2009, on the other hand, the majority of the flows into tax-free bond funds have been to short-term funds. The muni-national short category has experienced $18 billion in inflows for the year to date, compared with inflows of $6 billion in calendar year 2008 and outflows of $353 million in 2007. That once relatively sleepy category has seen its market share triple since the end of 2007, based on total net assets.

Wells Fargo Advantage Ultra Short-Term Muni leads the year-to-date flows in this category, but Vanguard also has two top sellers: Vanguard Short-Term Tax-Exempt and Vanguard Limited-Term Tax-Exempt, the investment company reported.

Even the ultrashort bond category has attracted investors in 2009, with more than $5 billion in inflows so far this year. Although the top-selling fund in the category this year, PIMCO Short-Term, managed to navigate the credit crisis fairly well, like most category funds, it was not able to stay in positive territory in 2008.

Despite the movement toward the relative safety of fixed income, Morningstar said, there is still some appetite for risk out there. For example, diversified emerging markets was the most popular Morningstar equity category in July, and it has seen $9 billion in flows for the year to date.