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Fund Investors Favored Taxable Bonds, International Equities in March

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For the first month this year, more money flowed out of U.S. equity mutual funds than flowed in, yielding a net outflow of $6.335 billion in March, according to the latest flows report from Cerulli Associates. At the same time, total inflows into mutual funds outpaced inflows into ETFs, but assets overall for both were little changed.

By month’s end U.S. mutual funds had $12.3 trillion in assets, down 0.9% from February, while ETFs finished with $2.1 trillion, up 0.1%.

Among mutual funds, taxable bond and international equity funds saw the biggest net inflows in March. Inflows into taxable bond funds were $14.09 billion, led by intermediate-term bond funds including the Metropolitan West Total Return Bond Fund, which took in $12.09 billion in the first quarter, more than any other taxable bond fund. Cerulli noted that Metropolitan West Total Return and the Dodge & Cox Income Fund were likely the biggest beneficiaries of the billions of dollars that left the Pimco Total Return Fund following Bill Gross’s sudden departure.

Inflows into international equity funds were 80% higher in March than February, at $13.8 billion. Almost 40% of the new money flowed into European stock funds, possibly because of the ECB’s $1 trillion-plus government bond buying program to boost growth, according to Cerulli. The program was announced in January but purchases did not begin until March.

Unlike mutual funds, ETFs saw net inflows in March, as $26.8 billion poured in, but taxable bond ETFs had outflows. International equity ETFs led inflows, raking in nearly $21 billion with European stocks and foreign large blend the most popular asset categories, using Morningstar data.

By the end of the quarter international equity ETFs were the most popular asset class, having taken in $37.7 billion, while U.S. equity ETFs were the biggest loser, with outflows of $12.65 billion.

It was a different story for mutual funds. Fixed income funds led, with inflows of $44.1 billion, followed by $34.5 billion flowing into equity funds and $3.9 billion into alternatives.

Collecting income remains a primary goal for investors, advisors and institutions, according to the same report from Cerulli. Nearly 90% of financial advisors surveyed reported that demand for income is somewhat or highly influential in driving their portfolio construction decisions. Nearly 80% of product executives surveyed reported that the need for income is driving innovation for the retail channels.

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