Investors Abandon Mutual Funds in July

June's trends accelerated in July, with estimated long-term fund outflows quadrupling to $17.1 billion, according to data from Morningstar.

These were the greatest long-term outflows since December 2008 and they once again are owed mostly to flight out of U.S.-stock funds; the funds shed $22.9 billion in July, the greatest net redemptions since investors pulled $27.9 billion during the credit crisis’ peak in October 2008.   

Unlike October 2008, though, when investors shifted $131 billion to money market funds, they withdrew more than $107 billion from money market funds in July. Combined June and July money market outflows were nearly $150 billion, as investor fears about the government’s failure to raise the debt ceiling and a resulting credit freeze may have led to this mini money market run, Morningstar said.   

International-stock outflows also picked up to $3.7 billion, but that figure would have been even greater if not for the $1.3 billion that poured into diversified emerging-markets stock funds. Foreign large-cap funds collectively lost $2.6 billion and world-stock funds shed $2 billion. Outflows from moderate-allocation funds also picked up pace, as investors withdrew nearly $2.7 billion from the category, the greatest net redemptions since March 2009.  

Investors didn’t necessarily retreat to taxable-bond funds, but that asset class still took in $8.9 billion, in contrast to the credit crisis in fall 2008, when investors were generally pulling money from taxable-bond funds. World-bond funds remained the most popular, with nearly $2.4 billion in inflows.  

At nearly $2.2 billion, emerging-markets bond flows nearly matched last month's record inflows. High-yield bond funds snapped back with inflows of $2.0 billion after investors withdrew nearly $6.3 billion in June. On the other hand, investors seem to have lost their affinity for bank-loan funds as inflows continued to decline. Morningstar noted that this decline was not precipitated by a market shock or overly poor performance. The category was still up nearly 2.9% for the year to date through July, although this did trail the 5.2% average gain for high-yield bond funds.  

After interest picked up in June, investors once again fled government-bond funds. They collectively pulled $1.3 billion from the three main government categories after having contributed $1.5 billion the previous month.   

Municipal-bond flows were relatively flat overall for the third consecutive month. As has been the recent pattern, though, flows into the national categories continue to strengthen, while single-state categories generally still faced redemptions. The muni-short and muni-national intermediate categories collected nearly $1.4 billion combined in new contributions. However, the muni-national long category had the group's largest outflows of nearly $840 million. Long-term muni funds of all stripes were the least-popular categories, surrendering more than $1.3 billion collectively in July.  

According to the report, with long-term outflows turning substantially negative, most fund families had a rough slog in July. PIMCO's bond-heavy lineup was one of the few bright spots. BlackRock had a reasonably strong month with nearly $500 million in inflows. Somewhat surprisingly, its most-popular offering was BlackRock Equity Dividend, which collected about $300 million. JPMorgan had an even better month with nearly $1.4 billion in inflows. Its bond funds led the way, although several U.S.-equity funds also had positive flows.  

American Funds, on the other hand, with close to $10 billion in estimated outflows, had its worst month since October 2008. Growth Fund of America was again the biggest loser, with more than $3.3 billion in net redemptions. Fidelity's outflows were not quite as bad, but still approached $6 billion.  

The report is at