Cautious Consumers Embrace Bond Funds, Still Shy On Equities
Consumers continue to view equities with some apprehension and seem to be favoring bond funds, mutual fund industry data suggest.
And, according to a recent Merrill Lynch report, they may be justified.
Investor movement to bond funds that Vanguard Group, Valley Forge, Pa., has experienced throughout 2002 continued in November, according to John Woerth, a Vanguard spokesman.
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At Vanguard, November net new money into bond funds–defined as purchases less redemptions and plus/minus exhanges from other Vanguard funds–totaled $900 million. Equity inflows totaled $640 million, and money markets reached $500 million.
Bond funds were largely taxable funds but also included tax-free funds, according to Woerth.
October was the exception to bond inflows with investors moving $540 million out of funds, largely due to the fact that interest rates spiked somewhat, he adds.
What Vanguard learned as a result of a recent survey, Woerth says, is that 70% of investors did not understand the inverse relationship between interest rates and a bond funds net asset value. So, he continues, if interest rates start rising, investors need to be more aware of the impact on their funds shares.
Fund sales at T. Rowe Price, Baltimore, suggested some tentative confidence in returning to equity funds, according to Brian Lewbart, a T. Rowe Price spokesman.
Although Lewbart says the company does not discuss fund cash flows, he adds that exchanges are showing some slight movement into equity funds and out of money market funds.
That movement is slow, he says, because the retail investor wants to see “longer proof” the economy and stock market are improving.
There are also slight outflows from international funds and inflows into high yield funds, Lewbart says.