The general movement out of equity mutual funds and into bond funds continued in June, according to the Direct Fund Flows report from Morningstar Inc.
U.S. stock funds experienced outflows of $8.5 billion, versus $10.8 billion in inflows to taxable-bond funds and $3.8 billion to municipal bond funds. “We have the aging baby boomers concerned with capital preservation, near-zero rates in the money market and better returns in bond funds than stock funds in the last decade,” said Kevin McDevitt, a Morningstar analyst. “The trend out of stock funds and into bond funds is not surprising.”
The notable exception to the anti-equity sentiment was the nearly $4.8 billion that flowed into international stock funds in June. Over $15 billion of the $25 billion that has gone into the category this year has gone to diversified emerging-markets funds.
Meanwhile, investors are accelerating their exodus from money market funds. With yields near zero and a high likelihood of increased regulation, investors have been leaving money market funds in droves. More than $30 billion was pulled out of the funds in June, bringing the total outflows for the year so far to nearly $162 billion. With less than $2.4 trillion in assets now, money market funds are at their lowest asset levels since August 2007.
“Since January 2009, we've seen about $1 trillion leave money market funds and about $1 trillion flow into taxable and municipal bonds. That's no coincidence,” Mr. McDevitt said.
In the low-yield environment, muni bond funds have recovered their appeal with investors, despite an uptick in default rates for municipal issuers — San Bernardino County being the latest to consider bankruptcy. Another $3.8 billion went into the funds in June, bringing the total to $28.2 billion for the first half.
After losing $43 billion between November 2010 and April 2011, when Meredith Whitney said defaults would start to hit, muni funds have regained about $40 billion of those assets. Yield-hungry investors are even plowing more money into riskier assets; high-yield muni funds saw $6.7 billion in new money the last six months.
The Vanguard Group Inc. continued to pad its lead in the mutual fund space with $5.8 billion in net asset flows for June. The company has $1.45 trillion in assets under management. Pacific Investment Management Co. LLC. was second with $4.2 billion in new money, followed by DoubleLine Capital LP, which took in $2.3 billion during June. The Doubleline Total Return Fund, managed by Jeffrey Gundlach, was the single most popular fund in the U.S., pulling in $2.1 billion in June and $18.1 billion in the last year.
American Funds Distributors Inc., the worst-performing fund family, continued to bleed assets. It lost $4.4 billion in June and has seen outflows of more than $77 billion in the last 12 months. It remains the second-largest fund family with $880 billion in assets.