US Bond & Stock Mutual Funds See Net Inflows of $16 Billion in September 2010

Oct. 12, 2010 - PRLog -- Propelled by demand for bond funds and international exposure, US mutual fund investors added about $16 billion in net new cash to US stock and bond mutual funds in September 2010 (in open-end and closed-end mutual funds, excluding ETFs and funds underlying variable annuities). September’s net inflows were a slight decrease from the $19.5 billion of net new flows into long-term funds seen in August, according to Strategic Insight, a business intelligence provider to the worldwide fund industry.

Ongoing economic and employment uncertainty dampened investor confidence, reducing the appetite for domestic equity funds – and resulted in $15 billion in net outflows from US equity funds in September (a tiny amount compared with the industry’s $5 trillion in equity fund assets). However, an increasing focus on international diversification, including a growing allocation to emerging markets, led to $5 billion in net inflows into international and global stock funds. In the first nine months of 2010, investors have put $39 billion into international and global equity mutual funds. September’s international bent was also echoed in bond funds, where global bond funds saw $5 billion in net inflows in September.

“The desire to rebalance away from your home market and towards a more globalized portfolio with a greater exposure to emerging markets is not just a US phenomenon. We observe it in Europe and Asia too, as investor sentiment towards home-country funds lags behind rebounding global stock markets,” commented Avi Nachmany, SI’s Director of Research.

Bond funds experienced net inflows of $26 billion in September, as investors continued to demand short- and intermediate-maturity bond funds for alternatives to low-yielding cash vehicles (also seen in the roughly $30 billion in net outflows experienced by money market funds in September.) In addition, investors used general bond funds as less volatile means of participating in global financial markets. Overall, taxable bond funds drew roughly $23.5 billion in net investments in September and muni bond funds attracted $2.3 billion.

In the first nine months of 2010, net inflows to bond funds totaled $223 billion (not counting additional inflows to bond ETFs and bond VAs funds). In comparison, the same universe of bond funds drew roughly $250 billion of flows in the first nine months of 2009, on their way to a record $350 billion in flows for the entire year. In 2010, bond fund flows should top $300 billion in total annual flows for only the second time in history.

ETFs: Separately, Strategic Insight estimated that investors poured an additional $26 billion into US Exchange-Traded Funds (ETFs) in September, resuming the trend of monthly net inflows that was interrupted by $1 billion in outflows in August. In the first nine months of 2010, ETFs (including ETNs) took in $73 billion in flows. At the end of September, US ETF assets stood at a record $897 billion.  “We stick by our prediction, made over a year ago, that US ETF assets would hit $1 trillion by the end of 2011,” said Loren Fox, a senior research analyst at Strategic Insight. “Recent developments, such as the spread of commission-free ETF trading at certain brokerages, should only accelerate the growth of ETFs.”

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Strategic Insight, an Asset International company, is a leading research firm for the mutual fund and wealth management industry, providing clients with in-depth studies, consultation, and electronic decision support systems.