Investors stampede, cautiously, back into mutual funds

Investors returned to mutual funds en masse during the second quarter, but appear to be proceeding with caution when it comes to riskier funds, according to a new report from Strategic Insight Mutual Fund Research and Consulting LLC. Combined, equity and fixed-income funds took in about $136 billion in new assets during the quarter, which registered as the best quarter for mutual funds in more than two years. That is a major uptick from the $8 billion in net new flows into both stock and bond funds in the first quarter, and is the largest three-month period of inflows since the first quarter of 2007, when the total was nearly $150 billion. The totals exclude money market mutual funds and exchange traded funds. The recent recovery in the markets — the Standard & Poor’s 500 stock index was up 15% during the quarter and is up about 35% since early March — has apparently increased investor confidence and ignited the return to mutual funds, according to New York-based Strategic Insight. But investors still seem to be “tiptoeing back into riskier asset classes,” Loren Fox, a senior research analyst at Strategic Insight, said in a statement. Indeed, investors poured most of their money into bond funds, which attracted $90 billion of the net flows during the second quarter. Most of these assets were invested in taxable bond funds, according to Strategic Insight, as investors moved their money out of cash in search of higher yields. Equity funds, meanwhile, recorded $47 billion in net new flows during the second quarter, with investors showing an increasing appetite for international funds as the quarter came to a close, the report said.