Bonds Rise in Stature, as Cash Becomes King

In the first month of 2008, stock and bond funds tracked by Financial Research Corporation had net outflows of nearly $23 billion. Government funds, however, had inflows of $6.5 billion, while corporate bond funds drew $5.8 billion. Tax-free funds attracted $2.4 billion in January. International/global funds had net outflows of $5 billion, FRC reports, and domestic-equity funds lost $32.5 billion in assets.

By Morningstar category, intermediate-term bonds had the largest net inflows in early 2008, with $8.1 billion in net flows. World-allocation funds drew $3.9 billion and inflation-protected bonds close to $3.0 billion.

Target-date funds for 2015-2029 had inflows of roughly $2.5 billion. Those with target dates of 2030 and beyond drew $2.1 billion, and 2000-2014 funds had flows of $814 million. Specialty-metals funds attracted close to $1.4 billion in January, behind financial funds with $2.4 billion, according to FRC.

The latest Merrill Lynch fund manager survey shows more than 40 percent of fund managers overweight in cash, up from about 30 percent in January 2008 and roughly 25 percent in December 2007. According to Merrill, this is the highest reading since September 2001 when investors reacted to the terrorist attacks on the U.S. And 8 percent of managers are now underweight in equities.

Despite these views, about one-fourth of the 190 fund managers surveyed think global equity markets are undervalued. And although close to 70 percent view the 12-month outlook for corporate profits negatively, more than 45 percent say the outlook in emerging markets is favorable.

These trends are supported by EPFR Global’s research of late February. In the third week of that month alone, global money-market funds absorbed about $17.2 billion, making year-to-date inflows in this category up more than $100 billion.