Investors Flee from Bond Funds in August

Mutual fund investors withdrew $15.5 billion from taxable-bond funds and $11.8 billion from municipal-bond funds in August, according to Morningstar Inc.

In the September issue of its report “Morningstar Direct: U.S. Open-End Asset Flows Update,” Morningstar detailed how since the end of April, investors have withdrawn $81.9 billion from bond funds, with taxable-bond funds losing 1.6% of beginning assets to outflows and municipal-bond funds losing 6.6% to outflows.

The report also observed that interest rates climbed all summer, with the 10-year Treasury flirting with a 3% yield. All of the other category groups, including U.S. and international equity, saw positive flows. Money market funds gained $20 billion.

Strong outflows from municipal-bond funds in recent months rival the strong flows seen in 2011. According to the report, while the most-recent wave of outflows may be a reflection of panic over the Detroit bankruptcy filing, it may also be nothing more than a move away from interest-rate risk. Because of the low default rate of municipals, said Morningstar, they primarily have interest-rate risk exposure. Therefore, outflows from this category are similar in relative size to outflows from Treasury bond funds.

The top five top-flowing funds for August were the Vanguard Total Stock Market Index Fund, the Oakmark International Fund, the Oppenheimer Senior Floating Rate Fund, the J.P. Morgan Strategic Income Opps Fund and the PIMCO Short Term Fund. The top five bottom-flowing funds for August were the PIMCO Total Return Fund, the Vanguard GNMA Fund, the DoubleLine Total Return Bond Fund, the Vanguard Inflation-Protected Securities and the PIMCO Real Return Fund.