May 11, 2011

Top Fund Families See Slight Shift

Some fund families are moving into or close to the top-10 list, such as Dimensional Fund Advisors and J.P. Morgan Asset Management

According to the Financial Research Corporation, stock and bond funds experienced net inflows of $32.7 billion in March. International/global equity-objective funds had net inflow of $18.6 billion, followed by corporate-focused funds with $11.7 billion.

Fidelity Series High Income attracted $8.6 billion to lead the fund sales chart. FRC’s fund-flows data includes ETFs and excludes money market funds in its universe of mutual funds.

The top fund families tracked by FRC, based on assets as of March 31, were Vanguard, Fidelity, American Funds, BlackRock and PIMCO. This includes ETF assets but not fund-of-funds assets.

Boston-based FRC’s data differs only slightly from that of Morningstar, which noted in its most recent report: “The pace of long-term inflows slowed slightly to $27.0 billion in March from nearly $28 billion in February, due largely to a drop off in U.S. stock flows. After having taken in nearly $26 billion combined in January and February, U.S. stock funds saw $934 million in March outflows.”

International-stock funds took in $6 billion, says Chicago-based Morningstar. “That was driven by nearly $2.7 billion in emerging-market inflows, after the category had experienced anomalous, modest outflows the previous month,” wrote CFA Kevin McDevitt, an analyst and editorial director.

Taxable bonds slightly surpassed February's haul with $18 billion in inflows, as bank-loan funds led the way with $4.3 billion, he adds, while municipal-bond outflows slowed for a third consecutive month with less than $2.6 billion in outflows.

Meanwhile, more than $40 billion has vacated municipal-bond funds over the last five months, which represents 7.8 percent of total assets. Demand for alternative and commodity funds remained steady with $1.1 billion and $1.8 billion, respectively, in inflows. Also, money-market funds saw $12.5 billion in net outflows, which were roughly even between taxable and tax-free offerings.

In its monthly analysis, Morningstar reported that the Templeton Global Bond continued to lead all funds in March with nearly $1.9 billion in estimated inflows. “This shows investors' interest in finding a hot hand, but also in diversifying out of the crumbling dollar,” said McDevitt in a press release. With more than $52 billion in U.S. assets, the fund is nearly five times the size it was two years ago.

In another indication that investors are looking for inflation protection, Pacific Heights Asset Management’s Permanent Portfolio took in about $750 million. “This quirky fund, which focuses on preserving purchasing power, has long maintained stakes in gold and silver as well as the Swiss franc, arguably one of the few remaining ‘hard currencies’ in the

developed world,” the Morningstar analyst noted. With $5.1 billion of inflows over the past year, the fund's asset base has more than doubled to $12.2 billion.

While Bruce Berkowitz's Fairholme fund saw about $300 million move out the door in March, Fidelity Advisor Japan, Matthews Japan, and DFA Japanese Small Company Portfolio each welcomed close to $25 million or more. Overall, the Japan-stock category saw minimal outflows of just $4 million. “This is impressive resilience for a battered category,” noted Morningstar.

While there have not been any seismic shifts in the top fund families over the past few months, McDevitt says, some fund families are moving into or close to the top-10 list, such as Dimensional Fund Advisors and J.P. Morgan Asset Management.

“DFA is benefitting from the fact that some of its funds are small-cap and emerging-markets oriented on the equity side, which are two popular areas. They also are passively managed, another popular investing trend of the past two years,” he said in an interview on Tuesday.

“J.P. Morgan has been in the right place at right time, as well. Lot of the company’s funds are in fixed income, which is seeing flows,” the analyst continued. “And some of its funds appeal more to investors looking for exposure to alternative strategies or commodity-focused strategies.”

Some of the J.P. Morgan funds that have been drawing investor assets include the Highbridge Dynamic Commodities Strategy Fund (HDSAX), J.P. Morgan High Yield Fund (OHYAX) and the J.P. Morgan Emerging Markets Equity Fund (JFAMX). “This lineup has been fairly well suited to where investors are putting their money these days,” added McDevitt.

Fidelity and American Funds have experienced outflows, he notes, but have still produced strong results in terms of assets over the past year as the markets have done well. The outflows are partly a function of their lineups, shares the analyst.

“American Funds, for instance, is more equity oriented in areas where investors have been redeeming assets, such as large-cap and large-cap domestic equity. The group has international funds, but a many of its assets are in the large-cap and other least-popular categories,” he explained.

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