Fund Outflows Reach 2008 Levels in July

A report from Cerulli, utilizing research conducted by Morningstar Direct, said international stock funds ranked second in asset losses, with losses of $30.2 billion (-2.1%). Taxable bonds added the most assets of all the classes, taking in $34.3 billion during July (1.7% increase).

Investment focus in July turned away from equities and into other asset classes; high-yield, commodities, and short municipal bond funds gained traction. Commodities funds moved up the ranks in monthly flows from fourth in bottom flows in May to sixth for inflows in July. Flows into intermediate-term bond funds slowed significantly in July, bringing in $991 million, down from $4.7 billion in June.

U.S. stock funds experienced market crisis levels of outflows in July with $22.9 billion. The last time the asset class bled more than $20 billion in flows was in October 2008 ($27.5 billion). All managers in the top 10 lost assets in July, with Hartford Mutual Funds leading losses by 4.9%.

International stock mutual funds suffered their second consecutive month of outflows in July with $3.7 billion. Losses were driven by world stock funds, which had outflows of $2.0 billion for the month. However, not all categories were in net redemptions; diversified emerging markets funds attracted inflows of $1.3 billion.

As the volatile markets persisted, commodities funds pulled in flows close to $1 billion for July, ranking second behind taxable bonds. Multialternative funds led flows into the alternative class with $341 million.

Balanced funds suffered redemptions of $1.2 billion in July, the first time since September 2010. Looking at balanced categories, inflows from world allocation funds ($722 million) offset some of the outflows from moderate allocation funds in July (-$2.7 billion).

Flows into taxable bond funds slowed in July, the lowest month in 2011. However, while July was a difficult month overall for mutual funds, taxable bond funds managed to rank first by asset class flows. World, emerging markets, and high-yield bond funds collected the most flows within the asset class ($2.4 billion, $2.1 billion, and $2.0 billion, respectively).

While still in positive territory, municipal bond fund flows declined in July to $70.6 million, down from $1 billion in the previous month. The muni-short category captured the highest flows into the asset class, with Vanguard Limited Term Tax-Exempt Fund leading monthly flows for the category ($149 million).

Actively-managed mutual funds took a dramatic hit during the month with -$18.4 billion in net redemptions. The last time actively-managed funds suffered outflows exceeding $18 billion in one month was in December 2008. Large-growth and large-value funds contributed the most outflows among actively-managed funds with -$10.9 billion combined. Although some flows were attracted by passively-managed mutual funds, these funds experienced their third month of consecutive asset losses. With $1.1 billion, intermediate-term bond funds garnered top flows into passively-managed funds for July.

Investor uncertainty that money market funds might not be able to return their entire NAVs contributed to heavy losses in July. Taxable money markets surrendered nearly $104 billion in outflows and year-to-date totaled -$190 billion. Tax-free money market funds also shed assets by -1.5%, however outflows were only $4.3 billion.