Investors Put Net $27B into US Stock & Bond Mutual Funds in April 2011

May 11, 2011 - PRLog -- US mutual fund investors demonstrated confidence in a gradual economic recovery, adding about $27 billion in net new cash to US stock and bond mutual funds in April 2011 (in open-end and closed-end mutual funds, excluding ETFs and funds underlying variable annuities). The net inflows, a slight rise from March’s $23 billion of net inflows to long-term funds, showed continued optimism among US investors despite geopolitical tensions and uncertainty about the U.S. federal government’s budget.

Nearly $6 billion in net new cash went into US equity funds in April 2011, marking the fourth straight month of positive inflows to US equity mutual fund inflows, according to Strategic Insight, a business intelligence provider to the worldwide fund industry. It was another sign that demand for US equity funds is rebounding 2011, as the category drew total net inflows of $42.2 billion in the first four months of 2011. That was the best start to a year since January-April of 2006, when US investors put a total of $65.4 billion into domestic stock funds.

The bullish mood was helped by rising stock prices. The S&P 500 Index rose 3% in April, bringing its total return to 9% for the first four months of 2011; in 2010, a very good year for US stocks, the S&P 500 rose 7% in the first four months of the year.

“The post-crisis wariness is starting to fade, and investors are cautiously returning to US equity funds. This rise in confidence is still somewhat fragile, but if we continue to see signs that the economy is recovering then we should see steady demand for US equity funds in 2011,” said Avi Nachmany, SI’s Director of Research.

International and global equity funds saw almost $7 billion in net flows in April, despite continued turmoil in the Middle East and North Africa.

Taxable bond fund flows continued their positive streak in April, drawing $18 billion in net new flows, the biggest month of net inflows for taxable bond funds since drawing $21 billion in October 2010. The search for yield buoyed bond fund demand, and flows in April were led by low-volatility bond funds and global bind funds. “With yields on cash likely to remain minimal for the rest of 2011 and possibly beyond, we see ongoing demand for selected bond mutual fund strategies,” Mr. Nachmany said. “It is our view that until the Federal Reserve’s actions push cash yields to near 2%, demand for certain bond fund strategies should remain strong.”

Muni bond funds saw net outflows of $4 billion in April, as continued worries about the balance sheets of states and municipalities continued to weigh on the sector.

Money market funds, whose assets exceed $2.6 trillion, saw net outflows of $6 billion in April. “In the context of the current SEC deliberation about money funds’ $1 NAV assumption by their investors, it is important to recognize that most American mutual fund investors first entered the mutual fund market through owning a money market fund, and that reassurance of accessibility and liquidity led them to migrate up their personal risk curve to stock and bond funds,” Mr. Nachmany added. “Reducing the appeal of money market funds ahead of the next ‘Black Swan’ could have negative implications for mutual fund investments in bonds and stocks as well.”


ETFs: Separately, Strategic Insight estimated that investors poured an additional $23 billion into US Exchange-Traded Funds (ETFs) in April 2011, up from $9 billion of inflows in March. Flows were driven mostly by demand for US equity and international equity ETFs, which together drew $19 billion in net flows. Bond ETFs saw net inflows of $4 billion. US ETFs drew a total of $49 billion through the first four months of 2011, setting a pace ETFs to log their fifth straight year of $100 billion or more in annual net inflows.  

At the end of April, US ETF assets stood at a record $1.13 trillion – up from $1.01 trillion at the end of 2010. “The flexibility of ETFs and their usefulness for both strategic and tactical purposes continues to propel demand,” 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.