The Markets October 6, 2009

Bond Funds Continue to Dominate Fund Flows

Strong long-term fund flows persisted in August, and the recent pattern of greater flows into bond funds continued as well, according to Strategic Insight (SI).

Reported by

Rebecca Moore

Investors deposited $43 billion into bond funds and $12 billion into equity/hybrid funds over the month. U.S. Equity funds saw $4 billion of inflows in August, while International/Global Equity posted $47 billion in inflows, according to data from SI, which is owned by Asset International, the parent company of PLANADVISER.

Taxable bond funds collectively garnered $33 billion, while flows into U.S. Government Bond funds rose from the prior month’s $3.5 billion, to $5 billion. Flows into Inflation-indexed Bond funds remained strong and steady at $2.6 billion, as did those into multi-sector Strategic Income funds, at $1.5 billion. Expectations of further U.S. dollar weakening aided in more than doubling flows into Global Bond funds, to $4.5 billion.

However, in a switch from the experience in the prior month, international equity funds lagged U.S. equity funds in August in terms of asset-weighted average returns and ended up drawing a smaller percentage of total equity fund flows (about 60% in August, down from about 75% in July).

Flows into International/Global Equity funds slowed somewhat compared to July, primarily as a result of investors pulling back from diversified Emerging Market and China Region funds following slowing growth, according to SI. August’s international/global equity fund flows came almost entirely within actively managed funds.

Money-market mutual fund assets declined by another $45 billion or so in August as a result of continued shifts to higher-yielding investments. Flows into both lifecycle strategy and other kinds of funds-of-funds remained steady, bringing in $5.3 billion collectively. Year-to-date, funds-of-funds have brought in a total of $27 billion in net new cash flows.

ETF/ETN flows moderated in August, to $7 billion, driven by Dedicated Short-Bias, Commodities, Small-cap Core, and Real Estate products. Year-to-date through August, ETFs/ETNs have collectively drawn an estimated $55 billion in net new flows.

The SI data showed that among the largest firms (more than $20 billion in long-term fund assets under management), those garnering the most long-term fund flows were Vanguard ($11 billion), PIMCO/Allianz Global ($8.7 billion), Fidelity ($3.4 billion), JPMorgan Funds ($2.6 billion), Barclays Global Investors ($2.2 billion), Franklin Templeton ($2 billion), DFA ($1.9 billion), SSgA ($1.7 billion), and BlackRock ($1.5 billion).

Among smaller-size managers of long-term funds, those that led in total long-term fund flows in August were TCW, Rafferty Asset Management, Manning & Napier, Lazard Asset Management, Rydex Investments, and InvescoPowerShares.