Stock and bond fund investors have enjoyed more than $1 trillion in asset appreciation in 2012, helped by strong stock fund total returns averaging over 12% through the end of October, and bond fund total returns, which averaged nearly 8% in the same period.

Asset appreciation, as well as net inflows to bond and stock funds (including exchange-traded fund flows) projected to near or exceed $400 billion for all of 2012, could make 2012 a near-record year for expansion in asset under management for the U.S. mutual fund industry. This would be second to 2009, when asset gains jumped $2 trillion from a depressed level as markets rebounded strongly.

“So far, 2012 shapes as one of the best years ever for wealth creation for mutual fund investors,” said Avi Nachmany, director of research at Strategic Insight, an Asset International company. “Next year, assuming meaningful progress is accomplished in Washington, could similarly surprise many of the doomsayers.”

In 2013, most investors will continue to focus on income and stability, Nachmany predicted, noting that as economic life across America slowly improves, investment in stock funds will also increase. “With 80% to 90% of all stock fund balances dedicated to retirement savings, thus having accumulation and withdrawals’ time-horizons of 20, 30, or 40 years for most investors, once Americans become more confident about the future, investing for retirement in that more optimistic future through stock mutual funds will expand,” he said.

(Cont’d…)

In October, net inflows to bond funds reached $30 billion. Bond funds are projected to amass over $300 billion in net inflows for the full year, exceeding 2010 and 2011 pace, according to Strategic Insight. (Flow data represents open-end mutual funds, excluding ETFs and funds underlying variable annuities.)

Ahead of the election, tax and fiscal uncertainties, stock fund investors remained on the sidelines in October. Equity fund net redemptions were $15 billion. (ETFs investing in stocks also experienced modest redemptions of $2 billion in October, following inflows of $38 billion during September, their highest monthly take in four years.)

Target-date funds attracted $5 billion in net flows during October, increasing year-to-date net intake to $45 billion. “This year, target-date products are on track to rival the annual net flows record set in 2007 of $58 billion,”  said Bridget Bearden, head of Strategic Insight’s defined contribution and target date funds practice.

Money market funds moved into net redemptions during the month of $8 billion, bringing redemptions in such funds to nearly $144 billion so far in 2012.

Exchange-traded products benefited from $3 billion of October net intake, bringing total ETF net inflows (including exchange-traded notes) to nearly $140 billion for the first 10 months of 2012, already exceeding the full-year gain in each of the past three years. Outside the U.S., ETFs gained $45 billion so far in 2012. Thus, global ETF net flows in 2012 should exceed $200 billion. Gold, emerging markets, diversified international and corporate bond funds were among the many objectives gaining inflows, while a number of domestic growth-oriented funds faced monthly net redemptions.