Strategic Insight and Morningstar both reported a slowing of inflows into U.S. stock mutual funds in March as demand grew for international equity funds and taxable bond funds.

Net new flows into U.S. stock funds were reported differently by the two firms, however, with Strategic Insight putting the monthly inflow number at an increase of $400 million and Morningstar estimating net flows at minus $934 million.

Nevertheless, funds had their best quarterly showing for long-term fund flows tracked by Strategic Insight since the research firm reported $124 billion of net inflows in Q1 2010.

In total, the first quarter of 2011 saw $85 billion in net new flows go to U.S. stock and bond mutual funds, according to Strategic Insight. U.S. mutual fund investors added an estimated $23 billion in net new cash to U.S. stock and bond mutual funds in March 2011 in open-end and closed-end mutual funds, excluding exchange traded funds (ETFs) and funds underlying variable annuities.

Morningstar, meanwhile, reported that the estimated pace of inflows into long-term U.S. mutual funds slowed slightly to $27.0 billion in March from approximately $27.9 billion in February, due largely to a reversal in U.S. stock flows. The asset class saw outflows of $934 million in March after taking in roughly $26.1 billion combined in January and February. Inflows for U.S. ETFs rose to $7.4 billion in March after reaching $6.6 billion in February despite outflows of $3.3 billion from U.S. stock ETFs, which typically drive industry inflows, according to Morningstar.

U.S. stock and bond mutual fund assets ended March near $8.2 trillion, up more than $3.5 trillion from the stock market’s bottom of March 2009, Strategic Insight reported. Adding gains among ETFs and variable annuity funds, the asset recovery over the past two years exceeded $4.5 trillion. Fund industry assets have rebounded due to both market performance and about $700 billion in net inflows into bond funds and, to a much smaller extent, stock funds since March 2009.

“Investors are starting to return to the market, and the trauma of the global financial crisis is beginning to heal. As long as the U.S. economic recovery slowly gains momentum, we should see steady demand for U.S. equity funds in 2011,” said Avi Nachmany, Strategic Insight’s director of research, in a statement. “Interest in mutual funds in the U.S. and internationally is supported by the renewed appreciation, sparked by the financial crisis, of mutual funds’ transparency, liquidity and closely regulated nature.”

Morningstar’s editorial director Kevin McDevitt wrote that diversified emerging-markets flows, which have attracted a significant amount of attention since the financial crisis began in late 2008, highlight “a striking difference between how U.S. investors express this appetite versus European investors.”

 European investors have a much greater proportion of their money in emerging markets than American investors and more funds to choose from to gain emerging-markets exposure, but Americans have been adding aggressively to emerging-markets funds in recent years, and are increasingly choosing to invest in them through passively managed products, McDevitt noted. Six years ago, actively managed open-end mutual funds and ETFs comprised 79% of diversified emerging-markets assets, but today make up 53%.

Additional highlights from Morningstar’s report on mutual fund flows:

  • Bank-loan funds, with inflows of $4.3 billion, drove the $18.0 billion that flowed into taxable-bond funds in March. Total category assets for bank-loan funds have reached $59.8 billion, surpassing the $41.2 billion peak reached in June 2007 by nearly 50%.
  • Among U.S. stock funds, large-cap offerings lost about $3.2 billion across the value, blend, and growth categories, while small-cap funds enjoyed modest inflows of $791 million. However, investor preference for small-cap offerings hasn’t held with international-stock funds, where large-caps acquired $3.6 billion in new assets versus just $306 million for small-caps in March.
  • Municipal-bond fund outflows slowed for a third consecutive month, with less than $2.6 billion in March redemptions. Still, roughly $40.4 billion has vacated muni-bond funds over the last five months, which represents 7.8% of beginning total assets.
  • Demand for alternative and commodity funds remained steady with $1.1 and $1.8 billion in March inflows, respectively. Money market funds saw outflows of $12.5 billion in March after inflows of $16.7 billion in February.

Read about Lipper’s research on March fund flows at AdvisorOne.com.