Mutual Fund Investors Show Caution in June

June marked the smallest amount of positive net flows to long-term funds since December, when long-term mutual funds had net outflows of $22 billion, according to Strategic Insight, an Asset International company.   

Domestic equity funds registered their fifth consecutive month of net outflows, experiencing net outflows of nearly $8 billion. The net outflows in June came even though the average U.S. equity fund generated a 3.4% return for the month, on an asset-weighted basis. “For many fund shareholders, risk aversion will persist as a theme in the face of volatility. Gains in the stock market have not emboldened investors, who worry about the ever-present risk of future losses,” said Avi Nachmany, SI’s director of research. Nachmany noted that the S&P 500 index gained 4.1% in June, only to drop 1.4% through July 11.  

International equity mutual funds drew net inflows of just over $5 billion in June, as investors willing to take on risk favored international total return funds and emerging market equity funds. International/global equity funds drew $17 billion in the second quarter.    

Bond mutual funds saw net inflows of $15 billion in June, up from $14 billion in May. Taxable bond funds saw net inflows of $11 billion for the month, as investors continued to use bond funds as income-producing alternatives to money market funds, CDs, and bank deposit accounts. There has been some evidence of investors diversifying their fixed income exposure, because while short- and intermediate-term and general corporate bond funds led June’s net inflows, mortgage-backed, high yield, and emerging markets bond funds also drew healthy inflows in the month. For the second quarter, taxable bond funds saw net inflows of $38 billion.   

Muni bond funds saw net inflows of $4 billion in June and money market funds saw net outflows of $42 billion. Ultra-low yields continued to hamper demand for money market funds–a trend that resulted in net outflows of $66 billion in 2012’s second quarter.  

“When we look at the first half of 2012, we see much of what should be expected in the second half. Given the Federal Reserve’s current commitment to low interest rates and the lack of positive surprises in U.S. economic figures, we anticipate investors will continue to favor the relatively lower risk of bond funds over equity funds in coming months,” Nachmany said.