Funds See $7B Inflow in November

Propelled by demand for international exposure, U.S. mutual fund investors added about $7 billion in net new cash to U.S. stock and bond funds in November.

A news release from Strategic Insight, an Asset International company, said because of a slowdown in investors’ appetite for bond funds, November’s net inflows were decreased from the $28 billion of net new flows into long-term funds in October.

According to the SI data, an increasing focus on international diversification, including a growing allocation to emerging markets, led to $8.7 billion in net inflows into U.S.-based international and global stock offerings. This marked the sixth straight month that international and global equity funds saw positive flows. In the first 11 months of 2010, investors have put a total of $58 billion into international and global equity mutual funds.

SI said while U.S. equity funds experienced net outflows in November, estimated at under $1 billion, this was an improvement from October and the smallest amount of net outflows since April.

With bond fund total returns turning negative in November, bond funds experienced net outflows in aggregate of $1.3 billion. Investors net redeemed $7.4 billion from muni bond funds but added modestly to taxable bond funds, SI said. This marked the first month of net outflows for bond funds in two years, since December 2008 – the depths of the global financial crisis – when outflows from both taxable and muni bond funds totaled $6.8 billion.

According to the data, the net outflows from muni bond funds were largely triggered by modest NAV declines, as well as by liquidity conditions, including the coming end of the Build America Bonds program and an unusually large slate of pending muni new issues. Taxable bond funds saw net inflows of $6 billion in November as investors continued to favor short- and intermediate-maturity bond funds for alternatives to low-yielding cash vehicles.

Through the first 11 months of 2010, bond funds in the U.S. attracted net inflows of $230 billion (not counting additional inflows to bond ETFs and bond VAs funds). With the Federal Reserve aiming for low interest rates in early 2011, Strategic Insight expects further demand for higher-yielding investments to continue to fuel flows into bond funds, according to the Si news release.

Money-market funds saw net inflows of $25.6 billion in November, the first month of positive flows since these funds took in net $15.5 billion in August.