Vanguard sees first net outflows in 20 years

Investors yanked $9.7 billion from bond funds in June, offsetting money going into stock and money-market funds

Jul 9, 2013 @ 2:53 pm

By Jason Kephart

Vanguard
+ Zoom
(Bloomberg)

June's mass exodus out of bonds left The Vanguard Group Inc. with its first month of net outflows in almost 20 years.

Investors pulled $9.7 billion out of Vanguard bond funds last month, according to spokeswoman Katie Henderson, which just outpaced the $9.6 billion that went into stock and money market funds, leaving the company with $100 million in withdrawals. It is the first month of net withdrawals for Vanguard since December 1994.

Excluding money market funds, it would be the first withdrawals since October 2008, according to Morningstar Inc.

The $110 billion Vanguard Total Bond Market Index Fund, its largest bond fund, lost 1.64% last month as interest rates continued to jerk upward, ending the month at 2.52%, up from 2.13%.

The Total Bond Market Fund (VBTLX) was down just over 3% year-to-date through July 8, according to Vanguard's website.

The net outflows come as a small surprise, given just how popular Vanguard has been with investors since the financial crisis.

In all, Vanguard has taken in more than $500 billion of new investments since the beginning of 2009, or more than a quarter of all fund flows over that time period, according to Morningstar.

Vanguard wasn't alone in feeling the pinch from rising interest rates, though. In fact, no bond funds seemed to be safe.

Pacific Investment Management Co. LLC, the world's largest bond company, saw investors pull out $14.5 billion, its first net withdrawals since December 2011.

Pimco had been second only to Vanguard in net inflows since 2009, with $276 billion of deposits, according to Morningstar.

In total, investors pulled out $60 billion out of bond funds last month, according to the Investment Company Institute.

It was the first month of net outflows since August 2011 and almost 50% more than the previous record of $41 billion in outflows in October 2008.

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