$13B Yanked from Mutual Funds in May

Investors responded to worrisome economic events in May by yanking $13.2 billion from equity funds.

Morningstar data showed that while money-market funds also saw May outflows, the size of those outflows declined considerably, suggesting that some of the money exiting equity funds sought safety in money-market accounts. The $20.6 billion in money fund redemptions in May was roughly 20% of the average outflow experienced so far this year.

Almost $15 billion left U.S. stock funds in May for the largest monthly outflow since March 2009—the month that marked the beginning of the market recovery.

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The European economic woes brought an end to a long streak for international stock funds. After 13 straight months of steady inflows, the asset class saw redemptions of almost $6 billion in May, according to Morningstar.

Meanwhile, bond funds maintained positive flows for the month, but enthusiasm for the asset class cooled considerably. Taxable bond funds took in just $4.8 billion. That dwarfs the results seen in recent months and is the smallest monthly inflow since August 2008, Morningstar said.

While most bond categories saw positive flows in May, high-yield bond funds had to deal with massive redemptions. All but 34 of the 146 funds in the group registered outflows in May. By the end of the month, $6.3 billion had left the category, which is the largest monthly outflow since Morningstar records began in 1998.

Morningstar said at the opposite end of the spectrum, short-term bond funds attracted $4 billion in new cash. That category has experienced strong and steady inflows since the beginning of 2009. That year, short-term bond funds took in a record $50.5 billion, and they appear to be on track to meet or exceed that record in 2010, with $23.1 billion in inflows through the first five months of the year.

The Morningstar report is at http://www.global.morningstar.com/mayflows10.

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