Propelled by demand for international exposure, US mutual fund investors added about USD7bn in net new cash to US stock and bond mutual funds in November 2010.
Because of a slowdown in investors’ appetite for bond funds, November’s net inflows were a decrease from the USD28bn of net new flows into long-term funds seen in October, according to Strategic Insight, a business intelligence provider to the fund industry.
An increasing focus on international diversification, including a growing allocation to emerging markets, led to USD8.7bn in net inflows into US-based international and global stock funds. This marked the sixth straight month that international and global equity funds saw positive flows. In the first 11 months of 2010, investors have put a total of USD58bn into international and global equity mutual funds.
While US equity funds experienced net outflows in November, estimated at under USD1bn, this was an improvement from October and the smallest amount of net outflows since April.
“Rebalancing out of US equity funds in the wake of the financial crisis has been fairly modest considering the volatility and uncertainty in the markets since early 2009,” says Avi Nachmany, Strategic Insight’s director of research. “And as financial confidence slowly rebuilds, US equity funds should benefit in the coming years.”
With bond fund total returns turning negative in November, bond funds experienced net outflows in aggregate of USD1.3bn. Investors net redeemed USD7.4bn from muni bond funds but added modestly to taxable bond funds. This marked the first month of net outflows for bond funds in two years, since December 2008 – the depths of the global financial crisis – when outflows from both taxable and muni bond funds totalled USD6.8bn.
The net outflows from muni bond funds were largely triggered by modest NAV declines, as well as by liquidity conditions, including the coming end of the Build America Bonds programme and an unusually large slate of pending muni new issues. Taxable bond funds saw net inflows of USD6bn in November as investors continued to favour short- and intermediate-maturity bond funds for alternatives to low-yielding cash vehicles.
"Since early 2009, bond mutual funds around the world attracted more than USD1trn of new money. While November experienced a pause in such persistent demand, sustained risk aversion and insatiable current income needs suggest a continuation of inflows to such funds in 2011," says Nachmany.
