If you're an adviser, you're probably wondering: Who is pouring all that money into bond funds?
It's not an easy question to answer, but at least part of the answer can be found in the mirror.
Most mutual fund inflows come via the institutional distribution channel, said Alina Lamy, senior analyst at Morningstar. The Chicago investment trackers define that as funds with the word "institutional" in their names, a minimum initial investment of $100,000 or more, or that state in their prospectus that they are designed for institutional investors or those purchasing on a fiduciary basis.
Much of that money comes from 401(k) plans and other large retirement accounts. But some could come from large advisory firms. Registered investment advisers might fall into the direct channel, but could invest in institutional shares as well. "We can't separate retail buying from traditional institutional investors," Ms. Lamy said. Registered investment advisers, she added, tend to invest via the smaller direct channel.
Whichever channel advisers use, the overwhelming investment of choice was taxable bonds – in July and for the entire past 12 months. Taxable bond funds and ETFs saw net inflows of $34.7 billion last month, and $317.6 billion for the past 12 months. U.S. stock funds watched $8.7 billion walk out the door in July, and just $59.6 net inflows in the past 12 months.
How has that worked out? The Standard & Poor's 500 stock index gained 2.1% in July and 16.4% in the past 12 months. The Bloomberg Barclay Aggregate Treasury bond index lost 2.6% in the past 12 months, including reinvested interest.
Why the fascination with bonds? Investors may be nervous as the bull market enters its ninth year, Ms. Lamy said. "If they feel that the market is near a peak, they're looking for lower risk and something that will provide income," she said.
Another possibility: As baby boomers age, they are entering the world of required minimum distributions from retirement plans. That often makes them invest more conservatively, and move money from stocks to bonds.
Whatever the reasons, mutual fund and ETF investors seem to be distinctly unenthusiastic about large-company U.S. stocks. One other big bet has worked well, however. Investors poured $160.4 billion into international equity funds in the past 12 months. The MSCI Europe, Australasia and Far East index has soared 25.3% for the period.
The Vanguard Group remained the leader among all fund companies for mutual fund flows, welcoming a net $21.7 billion in July and $337.6 billion for the past 12 months. iShares, which saw a July inflow of $13.9 billion, was in second place. Investors poured $191.5 billion into iShares for the year. Not surprisingly, passively managed funds were investors'' overwhelming favorite, gaining $671 billion in net new money as $181.5 billion fled active managers.