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.”
July was the fifth straight month of outflows from municipal-bond funds, during which time investors have withdrawn nearly $30 billion, the Morningstar research analyst says.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).