August 12, 2010

Strategic Insight Sees Stock, Bond Fund Inflows of $25 Billion in July

Demand for bond funds drove added net new cash

Driven by ongoing demand for bond funds, U.S. mutual fund investors added about $25 billion in net new cash to U.S. stock and bond mutual funds in July, Strategic Insight (SI), a business information provider to the fund industry, said Thursday, August 12.

July's net inflows were an improvement over roughly $14 billion of net new flows seen in June and net redemptions of $8 billion in May. The net new cash went into open-end mutual funds, excluding exchange-traded funds (ETFs) and funds underlying variable annuities, according to the Strategic Insight report.

Separately, Strategic Insight estimated that investors put net $7.5 billion into U.S. exchange-traded funds (ETFs) in July. ETF assets ended July at $831 billion, just off the April peak of $834 billion. International equity and taxable bond ETFs accounted for the bulk of July's net inflows.

"Despite positive returns in equity markets through the first seven months of 2010, investors have still been put off by the market volatility that propelled the S&P 500 to a 6.9% rise in July after a 5.4% drop in June," according to an SI news release. "Fund shareholders remain worried about the uncertain state of the economy and the pace of employment growth. As a result, equity funds saw modest net redemptions of $5 billion in July."

These outflows represented just 0.1% of equity fund assets. U.S. domestic equity funds saw net outflows of just over $7 billion. U.S.-based international/global equity funds, however, saw net inflows of nearly $2 billion.

Bond funds experienced net inflows of $30 billion in July, as inflows persisted among many lower-volatility U.S. bond funds used for cash management, SI said. Taxable bond funds drew $25 billion in net investments and muni bond funds attracted $5 billion, in both cases drawn in part by the search for income amid near-zero yields on cash and money-market vehicles.

"Even in the face of financial-market unpredictability, risk-averse investors are using mutual funds - especially bond funds - for long-term investing," Avi Nachmany, SI's director of research, in a statement. "Early August has been marked by further doubts about the economic environment, which suggests that strong bond-fund demand will continue."

Read a story about Strategic Insight's midyear fund flows report from the archives of InvestmentAdvisor.com.

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