Stock, Bond Mutual Funds on Pace for $850B in Global Flows in 2010

Nov. 10, 2010 - PRLog -- Led by robust demand for bond funds, the global mutual fund industry is on pace for $850 billion in net inflows to stock and bond mutual funds (including ETFs and funds underlying variable annuities) in the full year 2010, according to Strategic Insight, a business intelligence provider to the fund industry. More than half of those flows are estimated to end up in funds domiciled outside the US.

That is likely to fall just short of the $890 billion that went into stock and bond funds worldwide in 2009, but ahead of the net outflows from such long-term funds in 2008 and net inflows of around $800 billion in each of 2006 and 2007.

Those figures mark a strong resumption of fund investing around the world after the paralysis-induced shocks of 2008. Strategic Insight’s projections for the full year are based on SI’s Simfund databases and projections for November and December (and for October for some international markets).

“The fact that long-term mutual funds are drawing more inflows post-crisis than pre-crisis is not surprising,” commented Avi Nachmany, Strategic Insight’s Director of Research. “The global financial crisis underscored the value of mutual funds’ liquidity, transparency and accessibility. And, post-crisis, fund providers have been introducing more flexible and global funds, as well as more holistic “solutions” to meet evolving investors’ demands. Thanks to these trends, there is rising acceptance of the mutual fund around the world as the savings vehicle of choice.”

More than 60% of long-term fund flows are going into bond funds, including short- and intermediate-duration bond funds that appeal to investors seeking higher yields than those available in bank deposits or money-market funds. Some fund buyers are also seeking out bond funds as a way to participate in financial markets without taking on equity risk, as investors continue to be weighed down by concerns about economic growth, especially in the US, and about debt problems, especially in Europe.

“Many of the forces driving investors’ choices this year remain in place for 2011 and maybe beyond,” Nachmany said. “Financial insecurity, zero cash yields (being extended by the Federal Reserve’s recently announced quantitative easing), the depreciating US Dollar, and the expansion of bond fund mandates (to search globally and in the US for higher-yielding securities) all support the continuation of strong bond fund demand.”

In the US, Strategic Insight expects 2010 full-year flows to stock and bond funds to hit $400 billion, including ETFs and funds underlying VAs.

•   That would be just the second time in history that long-term fund flows topped $400 billion, besides last year’s record of more than $500 billion in long-term fund flows in the US.

•   Flows into bond funds – including ETFs – are on pace to top $300 billion for all of 2010, crossing the $300 billion mark for just the second time.

•   In October, US investors put $30 billion into bond and stock funds. This included just over $22 billion into bond funds, and roughly $7.5 billion into stock funds (including $10 billion into international and global equity funds, and $2.5 billion net redeemed from domestic equity funds).

“We are unlikely to see broad demand for equity funds until we see sustained job growth and other signs that the global economy, especially the US, is on surer footing,” said Loren Fox, 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, providing clients with in-depth studies, consultation, and electronic decision support systems.