Bond Funds Still Winning as Investors Dive Back into Market

February’s inflows raised year-to-date net inflows into long-term mutual funds to $73 billion. For the first quarter of 2010, net inflows to stock and bond funds could exceed $100 billion, a stark reversal from the under-$10 billion garnered during Q1 2009, Strategic Insight said.

The popularity of bond funds continued, as investors put about $24 billion into bond funds in February. According to estimates from SI’s Simfund database, leading the inflows were short- and intermediate-maturity corporate bond funds, with roughly $10 billion in combined net inflows. Global bond funds captured more than $4 billion in the latest month, and inflation worries triggered inflows of $2.5 billion to TIPS funds.

Reflecting cautious investment attitudes, long-short/market neutral stock funds gained $2 billion in February and may be on pace to break their $13 billion record last year. Flows into diversified U.S. equity funds were negative in February, despite the average domestic equity fund delivering a 3.4% total return in the month and nearly 60% return for the prior 12 months.

Investors put about $6.5 billion into international equity funds, led by $2 billion into global tactical asset allocation funds, with the balance into globally diversified funds. In February, the torrent of money into emerging markets slowed, as China, Latin America, and Asia-region funds experienced modest net redemptions.

Separately, SI said exchange-traded funds (ETFs) experienced $5 billion of aggregate net inflows during February, a turnaround from the net redemptions seen in January. The biggest draws were U.S. equity ETFs (including the SPDR S&P 500 ETF), short-term bond ETFs, and equity sector ETFs. At the end of February, U.S. ETF assets stood at $760 billion.