Investors Put Net $24B into US Stock & Bond Mutual Funds in May 2011

June 13, 2011 - PRLog -- US mutual fund investors added about $24 billion in net new cash to US stock and bond mutual funds in May 2011 (in open-end and closed-end mutual funds, excluding ETFs and funds underlying variable annuities). The net inflows, a slight decline from April’s $27 billion of net inflows to long-term funds, demonstrated a rise in investors’ anxiety over future economic growth, according to Strategic Insight, a business intelligence provider to the worldwide fund industry.

Mutual fund flows were led by bond funds and international equity funds. Bond funds experienced net inflows of $20 billion in May, as investors continued to put money into taxable bond funds in a search for alternatives to low-yielding cash vehicles and as low-risk ways of participating in financial markets. Overall, taxable bond funds drew $19.9 billion in May. Through the first five months of the year, taxable bond funds took in $79 billion in net inflows – a healthy pace even though it was less than the $108 billion in net flows that taxable bond funds saw in the first five months of 2010.

“Signs of a lull in the US economy’s recovery damped investors’ fragile confidence and suggests that the Federal Reserve will keep interest rates near record lows through 2011,” said Avi Nachmany, SI’s Director of Research. “If rate hikes are postponed until 2012, then 2011 will see ongoing demand for selected bond mutual fund strategies.”

Municipal bond funds had net outflows of roughly $0.2 billion, or almost no net outflows, on fewer worries about municipal bond default rates.

Reacting to disappointing economic and employment news, US investors withdrew nearly $3 billion in net new cash from domestic equity funds in May 2011. That marked the first month of net outflows from US equity funds since December’s net outflows of $8.5 billion. “Investors have still put net $39 billion into US equity funds through the first five months of the year. Net withdrawals from US equity funds were relatively modest in May, suggesting that setbacks in the recovery may cause dips in investors’ confidence,” Mr. Nachmany said. “We may see US equity funds experience volatile net flows in the near term, as investor confidence waxes and wanes.”

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

Money-market funds saw net outflows of $8 billion in May. This represented a widening of outflows from April, which saw net outflows of $6 billion from money funds.


ETFs: Separately, Strategic Insight estimated that US Exchange-Traded Funds (ETFs) in May experienced roughly $6.5 billion in net outflows. May 2011 was the first month of net outflows from ETFs after eight consecutive months of net inflows. Most of the net outflows came from US equity ETFs, which saw $10.5 billion in net outflows (compared with $11.3 billion in net inflows in April). Meanwhile, investors put $2.5 billion of net inflows into bond ETFs.

At the end of May, US ETF assets stood at $1.11 trillion, down from $1.13 trillion a month earlier. “Despite a pullback in May, US ETFs are still on pace to log their fifth straight year of $100 billion or more in net inflows,” said Loren Fox, senior research analyst at Strategic Insight. “This is a testament to the growing retail and institutional demand for 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.