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Strategic Insight: U.S. Stock and Bond Mutual Fund Net Inflows to Reach Just $80 Billion

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Shaken by market volatility, continued high unemployment, and concerns about global economic growth, the US fund industry is on pace for just $80 billion in net inflows to stock and bond mutual funds in 2011, a 67% decline from 2010, according to a new report.

Strategic Insight, New York, published this finding in a summary of results from a survey of the U.S. fund industry.

The 2011 estimate, the report says, would be significantly less than the $246 billion in net inflows that long-term mutual funds drew in 2010 and the $364 billion in net inflows seen in 2009.

One reason that smaller net-flows are expected for 2011 compared with 2010 is a significant drop in flows to bond funds, says Strategic Insight. The dip is a sign that volatility fatigue has pared investors’ willingness to participate in financial markets, though investors have continued to turn to bond funds as a source of income at a time of extremely low yields.

In addition, Strategic Insight says, 2011 featured accelerated net outflows from US equity funds, and a slowdown in net inflows to international/global equity funds, versus 2010—a result of investors’ reduced appetite for risk, as well underperformance by international funds versus US funds (and US Dollar appreciation).

Investment and economic uncertainty continue to lead Americans to hoard cash in the banking system, as deposit accounts expanded by about $2 trillion in the past few years, the company says.

“The drop in stock and bond mutual fund flows in 2011 reflects both a pause for some investors, as well as a shift for others in terms of what will engage investors and bring them back to the markets,” said Avi Nachmany, director of research for Strategic Insight. “Increasingly, alternative, non-traditional, flexible and global strategies are becoming more important parts of the investor portfolio. Today, the mutual fund industry is rife with product innovation that is creating a slew of funds that will help redefine asset allocation.”