Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
ThinkAdvisor

Portfolio > Mutual Funds > Bond Funds

Investors Embraced Equity & Credit Risk in July: Morningstar

X
Your article was successfully shared with the contacts you provided.

Morningstar says U.S. mutual fund asset flows approached $16 billion in July 2013, driven by inflows of close to $8 billion into international-equity funds. During the month, outflows from taxable-bond funds slowed considerably to $1.3 billion from outflows of $43.7 billion in June.

“The slow but steady growth of the economy and improving stock market valuations have likely made investors more comfortable with taking credit risk as they seek a cushion from interest-rate risk,” explained Michael Rawson, CFA, author of last Wednesday’s research report.

“The Detroit bankruptcy filing kept municipal-bond funds in heavy redemptions, however, as investors pulled $10.3 billion,” Rawson added. “While on the surface flows to taxable-bond funds appeared to moderate, at the category level investors continue to rotate out of intermediate-term bond and intermediate government-bond funds, opting instead for funds in bank-loan, nontraditional, high-yield, short-term bond, or equity categories.”

Motown Blues

July was the fifth straight month of outflows from municipal-bond funds, during which time investors have withdrawn nearly $30 billion, the Morningstar research analyst says. The Barclays Municipal Index lost 0.88% in July.

To put this decline in historical context, investors pulled $44.6 billion from municipal-bond funds between November 2010 and May 2011.

Last month, the Gold-rated Franklin High Yield Tax Free Income Fund lost $262 million to outflows, and the Gold-rated Fidelity Municipal Income Fund lost $314 million. The $1.3 billion Franklin Michigan Tax-Free Inc. had outflows of $66 million, or 5% of assets.

Morningstar analysts assign fund ratings of Gold, Silver, Bronze, Neutral or Negative.

Other Funds, Bonds

Flows into intermediate-term bond, intermediate government, long-term bond, and long-term government funds declined in July, when equity and less traditional taxable-bond categories saw inflows. In a reversal from June, when close to $12 billion left high-yield bond funds, investors added $4.5 billion to the category last month.

Within equities, value funds led the pack: “The $3.3 billion flow to large value was the strongest the category had seen since February 2007,” Rawson said.

The SunAmerica Focus Dividend Strategy, for instance, experienced $505 million in flows. The fund holds 30 stocks, has more than doubled its assets over the past year and returned 32.3% in the past year through July (vs. 25.0% for the S&P 500).

The Silver-rated Vanguard Equity Income gained $461 million of inflows, while the Gold-rated Dodge & Cox Stock – with returns of over 35% in the past year — brought in $425 million.

Funds in the large-growth and mid-cap growth groups had outflows, though the Bronze-rated JPMorgan Large Cap Growth attracted $1.4 billion.

“Among sector funds, Fidelity Select Biotechnology brought in $429 billion. The fund has nearly tripled in assets from a year ago thanks to strong flows and a 56.4% return,” the Morningstar fund-flows report shared.

In the energy universe, the Oppenheimer Steelpath MLP Income and Oppenheimer Steelpath MLP Alpha each brought in more than $200 million in new assets for the month. Plus, they’ve seen their assets more than double in the past year.

Fund-Family Leaders

JPMorgan was the top provider with $3.4 billion of flows, according to Morningstar’s July data. This helped push the firm’s market share to 2.00% from 1.86% a year ago.

Other large firms with growing market share are Dimensional Fund Advisors, Oakmark, Principal Funds and MFS.

“Flows to Vanguard turned positive last month after a rare outflow from the complex in June. Still, flows to Vanguard’s taxable- and municipal-bond funds were negative while flows to equity categories were positive,” Rawson explained.

Heavy redemptions continued at PIMCO, he notes, with investors yanking $7.5 billion from the PIMCO Total Return Fund, its third-consecutive month of outflows for the fund.

From early 2012 through April 2013, the fund attracted $21.5 billion of inflows vs. $18.4 billion of outflows. It returned 0.49% in July, edging out the Barclays US Aggregate Bond Index. Year to date, however, its return is -2.55% vs. -2.31% for the benchmark.

PIMCO investors pulled more than $900 million from both Gold-rated PIMCO Real Return and Silver-rated PIMCO Investment Grade Corporate Bond, yet added funds to Bronze-rated PIMCO High Yield,” the Morningstar report stated.

“The $307 million inflow into PIMCO High Yield was the largest since September 2012,” Rawson shared. “Bronze-rated PIMCO Unconstrained continued to have inflows while PIMCO Credit Absolute Return Fund saw inflows of $600 million, a nearly 45% one-month growth rate in assets for the fund that launched in August 2011 under Mark Kiesel, Morningstar’s 2012 Fixed-Income Fund Manager of the Year.”


NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.