Strategic Insight Reports $29 Billion in New Cash to Mutual Funds in February

Net inflows in U.S. stock and bond funds reflects investor optimism

Investors in February overcame inflation worries and uncertainty about events in the Middle East, and showed their optimism by adding about $29 billion in net new cash to U.S. stock and bond mutual funds, Strategic Insight (SI) reported Thursday.

The net inflows built on similar gains in January. 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. The equity and bond fund gains were in open-end and closed-end mutual funds, excluding exchange traded funds (ETFs) and funds underlying variable annuities, according to SI, a New York-based information provider.

“The demand for global diversification among U.S. 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, in a release. “Escalating food prices, $100+ oil and rising interest rates might continue to weight down investments in selected emerging wealth regions in the months ahead.”

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,” SI said in a news release reporting February’s numbers.

Demand for U.S. 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, SI said. “That was the best start to a year since January-February of 2007, when U.S. investors put a total of $25 billion into domestic stock funds.”

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.

“We see 2011 as a year for ongoing demand for selected bond mutual fund strategies,” 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.”

Separately, Strategic Insight estimated that investors put an additional $6 billion into U.S. ETFs in February, the sixth straight month of positive flows to ETFs. Flows were driven mostly by demand for equity ETFs.  

Read about Morningstar’s fund flows report for January at AdvisorOne.com.

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