US Stock & Bond Funds See Net Inflows of $29B in Feb. 2011 as US Investor Optimism Continues

March 10, 2011 - PRLog -- US mutual fund investors continued to flock to equities and bonds, adding about $29 billion in net new cash to US stock and bond mutual funds in February 2011 (in open-end and closed-end mutual funds, excluding ETFs and funds underlying variable annuities). The net inflows, building on January’s similar gains, demonstrated continued optimism among US investors despite uncertainty in the Middle East and North Africa and general worries over inflation.

An estimated $15 billion in net new cash went into US equity funds in February 2011, which was down from the $21 billion in equity fund inflows in January, according to Strategic Insight, a business intelligence provider to the worldwide fund industry. Notably, flows into international and global equity funds dropped to roughly $6 billion in February from $12 billion in January – a relatively positive sign given that February was marked by the tumultuous end of Egyptian President Hosni Mubarak’s reign on Feb. 11 and the start of a mass uprising in Libya on Feb. 17.

“The demand for global diversification among US investors remains a long-term, secular theme. Yet, rising geopolitical tensions and stock price declines have slowed capital flows to Emerging Markets in recent weeks,” said Avi Nachmany, SI’s Director of Research. “Escalating food prices, $100+ oil, and rising interest rates might continue to weight down investments in selected emerging wealth regions in the months ahead.”

Meanwhile, demand for US equity funds continued to rebound in 2011, drawing net inflows of nearly $15 billion in February, pushing their total to $35 billion in net inflows in the first two months of 2011. That was the best start to a year since January-February of 2007, when US investors put a total of $25 billion into domestic stock funds.

“US investors have started to overcome their post-crisis caution. February’s inflows were more evidence that investors’ appetite for risk has been increasing,” said Mr. Nachmany. “While the first week of March saw a pullback in net flows to US equity funds, as long as the slow US economic recovery rolls onward we should see steady demand for US equity funds in 2011.”

Taxable bond fund flows continued their positive streak in February, drawing $13 billion in net new flows, led by Global Bond, High-Yield, and Floating Rate funds. The search for yield buoyed bond fund demand, although at a slower pace that seen in 2010. “We see 2011 as a year for ongoing demand for selected bond mutual fund strategies,” Mr. Nachmany said. “Until global inflation and repeated hikes in US interest rates impact fund shareholder behavior, investors’ appetite for income in a period of near-zero yields on money fund and bank deposit accounts remains insatiable.”

Money-market funds saw net inflows of $13 billion in February. This followed net outflows of $77 billion in January, and was the first month of positive net new flows since November’s $25 billion in net inflows.


ETFs: Separately, Strategic Insight estimated that investors poured an additional $6 billion into US Exchange-Traded Funds (ETFs) in February 2011, the sixth straight month of positive flows to ETFs. Flows were driven mostly by demand for US equity ETFs (growth funds). Bond ETFs – including muni bond ETFs – saw net inflows, too.  

At the end of February, US ETF assets stood at a record $1.05 trillion – up from $1.01 trillion at the end of 2010. “The consistent appeal of ETFs is remarkable. It is just a matter of when, not if, US ETF assets reach $2 trillion,” 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.