U.S. Equity Funds Saw Renewed Demand in January

U.S. mutual fund investors added about $34 billion in net cash to U.S. stock and bond mutual funds in January 2011.

According to data from Strategic Insight (SI) , an Asset International company, an estimated $21 billion in net new cash went into U.S. equity funds in January. January was the first month of net inflows to U.S. equity funds since April 2010, when investors put $11 billion into domestic stock funds, and the first time U.S. equity funds topped $20 billion in net inflows since February 2004.   

International equity funds drew in $12.5 billion in January – making it the eighth straight month that international/global equity funds saw positive flows.   

Bond fund total returns turned decidedly positive in January, following two months of negative returns. This helped spark demand for taxable bond funds – especially floating rate, high yield and global bond portfolios – leading to net inflows of nearly $13 billion for the month, SI said. Investor appetite for income in a period of near-zero yields on money fund and bank deposit accounts continues to support bond fund inflows.  

Net outflows of nearly $13 billion from muni bond funds were largely triggered by liquidity conditions, including an unusually large slate of muni new issues in recent months, as well as concerns about the finances of many states and municipalities in the wake of the financial crisis and a sluggish economic recovery. SI said Muni bond funds are unlikely to continue to see such dramatic outflows in the long run, as the fears over municipal defaults may be overblown, and new issues of muni bonds are starting to slow.   

Flows into bond funds are likely to remain robust in 2011, even as they decline from the record levels of 2009 and the near-record levels of 2010. The search for yield continues to support bond fund sales, yet at a lower volume; SI projects aggregate bond fund sales to decrease by about 10% in 2011. 

Money-market funds saw net outflows of $77 billion in January. This followed net outflows of $509 billion in 2010.