Despite January's run-up in stocks, investors headed to bonds

More than $46B went to taxable bonds last month, versus $17B flowing into stock funds and ETFs

Feb 9, 2018 @ 12:59 pm

By John Waggoner

Investors poured a net $17.1 billion into stock funds and exchange-traded funds in January. But before you start chuckling about how people get into the stock market just before it heads south, the vast majority of fund flows last month — and over the past 12 months — have gone to bond funds, according to Morningstar Inc.

The Standard & Poor's 500 index has fallen 10.6% since Jan. 26, according to S&P, notching the first decline of 10% or more in two years. A 10% sell-off is considered an official correction.

The biggest chunk of money bound for stock funds and ETFs in January went to large blend funds — funds that look for growth at a reasonable price for large-company stocks. Those funds and ETFs saw a net new inflow of $30.5 billion. On balance, all of those flows went to passive funds and ETFs: Investors yanked $7.3 billion from active funds and invested $37.8 billion into passive funds.

Nevertheless, the flows to stock funds and ETFs pale in comparison with the money that went to taxable bonds ($46.9 billion) and international stocks ($41.9 billion). And that's been the story writ large for the past 12 months.

The 12-month flows to funds and ETFs:

• U.S. stock funds and ETFs: $33 billion

• Foreign stock funds and ETFs: $271 billion

• Taxable bond funds: $406 billion.

"Even though we see U.S. and global markets selling off, investors have positioned themselves in a more defensive manner, seeking the relative safety of bonds, despite rising interesting rates," said Todd Rosenbluth, senior director of mutual fund and ETF research at CFRA.

The average intermediate-term bond fund, the most popular fund with investors last month, has fallen 1.59% this year, compared to the 3.4% decline for the average large-cap blend fund.

Much of the money flowing into U.S. stocks this year has gone into ETFs, rather than traditional mutuals funds. Stock ETFs saw net inflows of $34 billion in January, while U.S. stock mutual funds watched $34.8 billion walk out the door. And the popularity of ETFs might explain some of the stock market's recent volatility.

"Retail mutual fund investors have historically been surprisingly patient," Mr. Rosenbluth said. "The challenge here is that if volatility persists, that patience is likely to wear thin."


What do you think?

View comments

Recommended for you

Featured video


The need for easier investment options.

Rob Barnett of Wilmington Trust makes the case for simpler investment choices for plan participants and sponsors.

Latest news & opinion

Why we must create a more diverse and sustainable financial planning profession

CEO explains how, why a firm should commit to conscious inclusion.

Wells Fargo sees slowdown in advisers exiting this year

The 2016 banking scandal and public relations fiasco had alienated some of the firm's advisers.

States trying to save DOL fiduciary rule appeal rejection of effort to intervene

California, New York, Oregon ask for rehearing by full 5th Circuit Court of Appeals.

Employees at best places to work focus on the person — and the fun

Employees at best places to work firms focus on the person and fun.

Waddell & Reed sees flurry of senior staff departures

Firm also experiences an almost 30% decline in number of brokers and advisers.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print