Bond funds took a big leap in September, with two tracking firms reporting heavy gains in flows for the fixed-income sector.
Bond funds gained another $32 billion, and were projected to amass over $300 billion in net inflows for the full year, exceeding the 2010 and 2011 pace, according to Strategic Insight, a business intelligence provider to the fund industry.
Morningstar reported similar figures, noting investors added $16.5 billion to long-term open-end funds, as inflows of $29.9 billion into taxable-bond funds overcame redemptions of $16.8 billion from U.S.-stock funds.
“The largest fixed-income category, intermediate-term bond, collected new assets of more than $13.2 billion, bolstered by inflows of $2.8 billion for PIMCO funds and more than $1.4 billion for DoubleLine,” the Chicago-based research firm said Thursday.
Strategic Insight added that mutual fund investors, already adding more than $1 trillion to their bond fund holdings since the 2008 crisis, continued to search for income and safety in bond funds during September.
“Investors in stock funds remained cautious, despite stock markets double-digit returns so far in 2012,” according to the company. “Equity fund shareholders are taking some of their recent profits ‘of the table,’ as stock fund redemptions during September were at the highest monthly level this year, climbing to $17 billion.”
“Insatiable demand for income and a lingering, semi-permanent state of investment anxiety continue to drive the choices for most mutual fund investors,” Avi Nachmany, Strategic Insight’s Director of Research, said in a statement. “We anticipate recent investors’ preference to persist in the coming months, but that a slow rotation towards stock funds may emerge in 2013.”
The Morningstar report noted that September was the 17th consecutive month of outflows for U.S. stock funds and “further evidence of investors' preference for the perceived safety of fixed income over equities.”
The Morningstar report also found:
- Following the Fed's announcement that it will keep short-term rates near zero through mid-2015, investors revealed a willingness to take on risk within fixed income. Riskier categories such as emerging-markets bond, high-yield bond, and bank-loan each saw inflows of approximately $2 billion during the month.
- Within equities, nearly every category saw outflows, led by large-growth with redemptions of $5 billion. While open-end equity mutual funds lost assets of $16.8 billion, nearly an equal amount flowed into equity exchange-traded funds.
- Dividend-focused funds have attracted $17.3 billion in assets this year, even as U.S.-stock funds lost $82.6 billion overall.