The MarketsMarch 13, 2012

Mutual Funds Record Strong February Inflows

Open-end mutual funds had their strongest long-term flows in nearly two years with an estimated $44 billion in February inflows.

Reported by Rebecca Moore

According to Morningstar, taxable-bond funds were once again the winner with more than $28 billion in inflows, the most since March 2010. Municipal-bond funds continued their return to normality with more than $6 billion in inflows, which is close to the long-term baseline.

Outflows continued for U.S.-stock funds with $1.2 billion walking out the door. However, this was the smallest net outflow in 10 months. International stocks fared better with $3.3 billion in inflows, but again, largely reflected interest in emerging-markets funds. Despite the government’s efforts to drain assets from money market funds via a zero interest-rate policy, that group actually saw its outflows drop dramatically to $3.7 billion from $38 billion in January.

Taxable-bond funds have dominated mutual fund inflows for years, but the cumulative effect is staggering, Morningstar said. Taxable-bond assets have more than doubled in the little more than three years since the end of 2008, increasing to $2.1 trillion from $1.0 trillion. During that time, the group’s share of overall mutual fund assets has grown to 25.0% from 20.6%. That growth has been fueled by about $680 billion in inflows.

Meanwhile, about $200 billion has fled U.S.-stock funds, despite the fact that the S&P 500 Index’s return during that time was about three times the gain on the Barclays Capital U.S. Aggregate Index. Intermediate-term bond funds have led the way throughout. The category collected $14 billion in February, which accounted for half the asset class’ haul. Over the past 12 months, the category’s nearly $61 billion in inflows represents more than one third of taxable bond’s nearly $160 billion total.

Passively managed U.S.-stock funds continue to attract money at the expense of their actively managed brethren. While actively managed funds have suffered outflows of $134.4 billion over the last 12 months, passively managed funds have collected about $20.1 billion in new assets.

To view the complete report, visit http://www.global.morningstar.com/febflows12.