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Net inflows into stocks and bond funds by U.S. mutual fund investors dipped 71% in March, new research reveals.

Strategic Insight (New York, N.Y.; Stamford, Conn.; Boston, Mass.) reports that U.S. mutual fund investors “cautiously” funneled an estimated $13 billion in net inflows into stock and bond funds during March 2012 (open-end and closed-end mutual funds, excluding ETFs and funds underlying variable annuities) That marks a sharp drop from February, when investors put a net $46 billion in flows into long-term funds.

Aggregate equity mutual fund flows were a negative $2 billion in March. This was offset by net inflows of about $15 billion into bond funds, which the report notes are seen as less risky. 

In total, long-term mutual funds experienced $96 billion of net inflows in 2012’s first quarter, a significant improvement over the previous quarter, which saw $23 billion in net outflows from long-term funds. The total was also up from the $87 billion in net inflows in the first quarter of 2011.

In March, domestic equity funds ended their two-month streak of net inflows by posting net outflows of $7.5 billion, the report says. The net outflows occurred despite another month of positive stock market returns.

The average U.S. equity fund gained 2% on an asset-weighted basis in March. And the S&P 500 Index generated a 12.6% total return in the first quarter of 2012 (the index’s best first quarter since 1998). 

International and global equity funds saw net inflows of just over $5 billion in March, led by flows into global allocation and diversified emerging markets stock funds. 

“Investor confidence remains fragile, as evidenced by the swift downturn in U.S. equity fund flows after two months of modest inflows,” says Avi Nachmany, SI’s director of research. “The optimism on Wall Street has yet to reach Main Street.

“There is no shortage of issues to worry about, including the economy, rising gasoline prices, and geopolitical tensions,” he adds. “So we expect investors to continue to be cautious; and the near term may prove more favorable for bond funds than stock funds.” 

NYC, Stamford, Ct and Boston, MA