US Bond & Stock Mutual Funds See $5 Billion Net Outflows in September 2011, Improving From August

US mutual fund investors withdrew an estimated $5 billion out of U.S. stock and bond mutual funds in September 2011, and $55 billion in the third quarter of 2011, said fund research and data provider Strategic Insight.
Oct. 12, 2011 - PRLog -- US mutual fund investors withdrew an estimated $5 billion out of U.S. stock and bond mutual funds in September 2011 (in open-end and closed-end mutual funds, excluding ETFs and funds underlying VAs). That marked a significant improvement from August, when such long-term funds saw $33.6 billion in net outflows, according to Strategic Insight, a business intelligence provider to the worldwide fund industry.

While fund shareholders continued to be uneasy over the global economy, domestic unemployment and other issues, investors pulled back from the spike in anxiety seen in August, which followed the historic downgrade of the U.S. debt rating by Standard & Poor’s.  In total, the third quarter of 2011 saw $55 billion in net outflows from US stock and bond mutual funds; that was down from the $51 billion in net inflows to long-term funds experienced in Q2 of 2011, and was the worst quarter for long-term fund flows since Q4 of 2008 (when long-term mutual funds saw $187 billion in net outflows).  

September’s net outflows came amid difficult market conditions. The S&P 500 Index fell 7% in September; the key benchmark dropped 13.9% in the third quarter, its biggest quarterly drop since 2008. U.S. Equity Funds saw net outflows of $15 billion in September. This was partly offset by nearly $6 billion in net inflows to International/global equity funds in September.

“Months of market volatility have left U.S. fund holders feeling more pessimistic. Risk aversion, as seen in the weak demand for U.S. equity funds, will be a persistent theme among investors,” commented Avi Nachmany, SI’s Director of Research. “We therefore expect demand for certain individual actively managed US equity funds that offer downside protection, risk controls or tactical flexibility.”

In September, taxable bond funds took in net flows of $3 billion, a turnaround from August’s net outflows of nearly $10 billion. Investors continued to seek income and less-risky means of participating in financial markets. And as worries over municipal defaults eased, tax-free bond funds drew nearly $2 billion in net inflows in September.  

“The Federal Reserve’s intention to keep interest rates extremely low should stoke demand for select bond funds, ” said Mr. Nachmany.

Money market mutual funds saw net outflows of roughly $11 billion in September, down from the net inflows of $69 billion they experienced in August, as the easing of anxiety in September halted investors’ flight to the safety of money funds.

In the first nine months of 2011, U.S. stock funds saw net outflows of almost $37 billion, and international equity funds saw net inflows of $49 billion. Taxable bond funds drew $94 billion in net inflows through the first nine months of the year, while tax-free bond funds saw net outflows of $22 billion in that time.

ETFs: Separately, Strategic Insight estimated that investors poured an additional $6 billion into US Exchange-Traded Funds (ETFs) in September, a reversal from the approximately $0.5 billion in net outflows that ETFs experienced in August. Taxable bond ETFs led the way in flows in September with $4 billion in net inflows, followed by equity ETFs with roughly $1.7 billion in net inflows. In the third quarter of 2011, total net inflows to ETFs were nearly $19 billion, down from $27 billion in net inflows in Q2 2011.

Because of equity market performance, ETFs (including ETNs) ended September with roughly $970 billion in total assets, the first time that ETF assets ended a month below the $1 trillion mark since November 2010. “Despite fluctuations in the markets, net flows to ETFs have been fairly consistent. We continue to believe that ETFs in the U.S. will reach $2 trillion in assets before 2016,” said Loren Fox, a 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.
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