As investors show their concern about domestic stocks, reflected in lower inflows to domestic equity funds, their demand for income is displayed in sharply higher inflows to bond funds in the first half of 2010. In figures released Thursday, July 15, by Strategic Insight (SI), a business intelligence provider to the fund industry, inflows to bond mutual funds totaled $138 billion.
Taxable bond funds were by far the most popular, with net inflows of $120 billion. Much of that $120 billion went to short- and intermediate-term corporate bond funds as investors seek to retain some liquidity while increasing yield. Tax-free bond funds claimed another $18 billion, although there is still close to $10 trillion dollars in highly liquid form – cash in banks and money funds – despite investors’ need for something superior to the near-zero yields offered by such caches.
Other figures show that inflows to foreign equity funds follow an interest in greater diversification. Net inflows for the first half of 2010 of $34 billion saw $10 billion go to emerging markets equity funds, outpacing investments of $7 billion in the same period of 2009.
Domestic equity funds showed investors’ distaste for risk, as net inflows of less than $4 billion in the first half of 2010 were small in comparison to other markets. However, that shows an improvement over 2009, in which there was a negative flow of $25.8 billion from domestic equity funds.
Exchange-Traded Funds (ETFs) were also up, with $39 billion in net inflows during the first half of 2010. This was led by gold ETFs, emerging markets ETFs, and short-term bond ETFs.
According to SI, trends that will drive the second half of 2010 include global tactical asset allocation funds, which afford their managers greater flexibility and invest in multiple asset classes around the world. Alternative mutual funds are also growing in popularity, as investors seek reduced volatility, absolute returns, and downside protection. Actively managed funds are also strong performers; said Avi Nachmany, director of research at SI, in a statement, “In times of uncertainty, most investors and their advisors prefer the focus and strong sense of conviction that active managers have for their strategies/philosophies.”
Read a story about Strategic Insight’s report on fund flows for the first four months of 2010 from the archives of InvestmentAdvisor.com.