US Stock & Bond Mutual Funds See Net Inflows of $20 Billion in August 2010

Sept. 14, 2010 - PRLog -- Driven by ongoing demand for bond funds, US mutual fund investors added about $20 billion in net new cash to US stock and bond mutual funds in August 2010 (in open-end and closed-end mutual funds, excluding ETFs and funds underlying variable annuities). August’s net inflows were a slight improvement over the $19 billion of net new flows seen in July, according to Strategic Insight, a business intelligence provider to the worldwide fund industry.

Bond funds experienced net inflows of $31 billion in August, as investors continued to demand short- and intermediate-maturity bond funds for alternatives to low-yielding cash vehicles, and general bond funds as less volatile means of participating in global financial markets. Tellingly, bond fund flows in August were led by corporate intermediate-maturity bond funds and global general corporate bond funds. Overall, taxable bond funds drew roughly $26 billion in net investments in August and muni bond funds attracted $5 billion.

In the eight months through August, net inflows to bond funds totaled $197 billion (not counting additional inflows to bond ETFs and bond VAs funds). In comparison, the same universe of bond funds drew $205 billion of flows in the first eight months of 2009, on their way to a record $350 billion in flows for the entire year.

Part of bond funds’ appeal lies, too, in their outperformance this year; total return on the average taxable bond fund was 6.8% in the first eight months of the year, topping the -3.3% total return of domestic stock funds.

Ongoing stock market volatility and economic and employment uncertainty – including market declines in August – continued to dampen demand for equity funds. As a result, equity funds saw modest net redemptions of $11.5 billion in August, according to Strategic Insight’s Simfund database. These outflows represented less than 0.1% of equity fund assets, and an even small portion of the $7.2 trillion invested in US stock and bond funds. US domestic equity funds saw net outflows of just over $12 billion. Meanwhile, US-based international/global equity funds enjoyed net inflows of nearly $700 million, attracting a portion of some investors’ growth-oriented capital.

“Risk-averse investors are not yet willing to commit to domestic equity funds because the slow economic recovery hasn’t inspired enough confidence. We may not see consistent inflows to US stock funds until unemployment eases and economic growth sparks higher interest,” commented Avi Nachmany, SI’s Director of Research. “Meanwhile, we are reassured by the ability of mutual funds to help investors attain both income and capital-appreciation goals.”

Separately, Strategic Insight estimated that investors withdrew a net $778 million from US Exchange-Traded Funds (ETFs) in August – the first month to see aggregate ETF net outflows since January 2010. US ETF assets ended July at $812 billion.

International emerging markets equity ETFs were the leaders in net inflows in August, followed, at a distance, by corporate high yield bond ETFs, gold ETFs and income & growth ETFs – echoing the split in the traditional mutual fund market between either safe-haven investments at one end of the spectrum and higher-risk investments at the other end. “The increasing varieties of ETFs are providing investment instruments to meet a wide range of investor needs. That sort of innovation and flexibility should help drive further growth in the ETF market,” said Loren Fox, a senior research analyst at Strategic Insight.

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Strategic Insight, an Asset International company, is a leading research firm for the mutual fund and wealth management industry. Using research, consulting and our fund-tracking databases, Strategic Insight aids its clients in their strategic analysis, marketing, distribution, product development, and other functions.