Bonds See Continued Investor Demand

Mutual fund flows were led by bond funds and international equity funds. Bond funds experienced net inflows of $20 billion in May, as investors continued to put money into taxable bond funds in a search for alternatives to low-yielding cash vehicles and as low-risk ways of participating in financial markets, Strategic Insight reported.   

Overall, taxable bond funds drew $19.9 billion in May. Through the first five months of the year, taxable bond funds took in $79 billion in net inflows – a healthy pace even though it was less than the $108 billion in net flows that taxable bond funds saw in the first five months of 2010.  

Municipal bond funds had net outflows of roughly $0.2 billion, or almost no net outflows, on fewer worries about municipal bond default rates. 

The data show that U.S. investors withdrew nearly $3 billion in net new cash from domestic equity funds in May 2011 - the first month of net outflows from U.S. equity funds since December’s net outflows of $8.5 billion. “Investors have still put net $39 billion into U.S. equity funds through the first five months of the year. Net withdrawals from U.S. equity funds were relatively modest in May, suggesting that setbacks in the recovery may cause dips in investors’ confidence,” said Avi Nachmany, Strategic Insight's Director of Research . “We may see U.S. equity funds experience volatile net flows in the near term, as investor confidence waxes and wanes.”  

International and global equity funds saw almost $7 billion in net flows in May, despite continued turmoil in the Middle East and North Africa.    

Money-market funds saw net outflows of $8 billion in May. This represented a widening of outflows from April, which saw net outflows of $6 billion from money funds.