The wild market rides prompted investors to pull some $13.2 billion out of long-term mutual funds in May, particularly from equity funds, reports Morningstar, though money markets saw large redemptions, too.
The redemption of nearly $15 billion from domestic-equity funds was the largest monthly outflow since March 2009, the research firm reports.
Plus, European economic woes ended 13 consecutive months of steady inflows for international-stock funds. The asset class saw outflows of nearly $6 billion in May.
Still, U.S. ETFs had inflows of $4.8 billion in the same month, bringing year-to-date net inflows to $24.7 billion. The ETF industry had roughly $793 billion in assets as of the end of May, according to Morningstar.
Overall, net mutual fund flows including money markets declined $26.6 billion in May.
For the first five months of 2010, long-term mutual fund flows stand at $151.4 billion. When money markets are included, the positive flows go the other way, for combined outflows of $464.3 billion.
In 2009, long-term fund flows were positive to the tune of $377.5 billion vs. outflows of $378.4 billion when money markets are added to the mix.
In May 2010, many bond categories did see positive flows, though more than 110 of the 146 high-yield bond funds registered outflows. "A total of $6.3 billion exited the category in May, which is the largest monthly outflow since Morningstar began keeping record in 1998," explains Sonya Morris, editorial director of fund analysis for Morningstar, in the group's latest monthly report.
Short-term bond funds, on the other hand, attracted $4 billion in new assets during the month. And flows into emerging-markets bond funds continued, "suggesting that investor perception about the risks of emerging-markets debt has changed," says Morris.
The pace of new issues has really heated up: Some 80 new funds have launched in 2010 through the end of May, excluding target-date funds. "Managed by star fixed-income manager Jeffrey Gundlach, the top newcomer is DoubleLine Total Return (DBLTX), which has amassed total net assets of $610 million since its early April debut," Morris shares.
And while some bond funds maintained positive flows in May, enthusiasm for the asset class did cool. Taxable bond funds took in just $4.8 billion, the smallest monthly inflows since August 2008.
As some developed economies struggled with historic debt loads, many emerging-markets economies have been working hard to clean up their balance sheets. "Record flows into emerging-markets bond funds suggest that investors' perceptions about the risks of emerging-markets debt have changed," says the Morningstar expert. Over the past 12 months, flows into this category have grown to nearly $10 billion.
Two PIMCO funds have been among the preferred vehicles for gaining exposure to emerging-markets bonds, according to Morris. The Pimco Emerging Local Bond (PEBLX) has had $2.3 billion in inflows over the past year, and the Pimco Developing Local Markets (PDEVX) has taken in $1.4 billion during the same period. Other leading funds in this category include MFS Emerging Market Debt Fund (MEDWX) with $1.6 billion in 12-month flows and T. Rowe Price Emerging Markets Bond (PRMSX) with $1.2 billion.