Taxable-Bond Funds Lead Mutual Fund Flows Again

April 13, 2012 ( - Flows into U.S. open-end mutual funds in the first quarter mirrored the equity market’s blistering performance, but investors were not chasing stocks.

By Rebecca Moore | April 13, 2012

For the seventh straight month, taxable-bond funds led all asset classes in flows, according to Morningstar Direct’s Asset Flows Update. These funds’ $24 billion in inflows in March contributed to a first-quarter intake of $79 billion.   

Long-term funds in total took in $29 billion in March to top off a $106 billion intake for the quarter. Meanwhile, money market funds bled $114 billion, the biggest quarterly outflow since the second quarter of 2010.  

Actively managed U.S. large-cap stock funds saw their eleventh straight quarter of net outflows, with $21 billion heading to the exits. While the S&P 500 returned 12.6% in the first quarter, the asset-weighted return of actively managed large-cap funds was 13.4%. Meanwhile, the average returns for intermediate-term bond and high-yield bond funds—the two categories that saw the most inflows during the quarter—were a comparatively modest 2% and 5%, respectively.  

Intermediate-term and high-yield bond funds led the way again in March and in the first quarter. Since January 2009, these two categories have gobbled up $314 billion of net investor dollars. Meanwhile, all other long-term funds have accounted for $460 billion in inflows.  

Emerging-markets bond-fund flows reached $6 billion in the first quarter, by far the largest quarterly intake for this category. Assets in the category have risen to $56 billion from $36 billion a year ago. In organic growth-rate terms, only managed-futures funds (55%) have bested emerging-markets bonds' 47% clip over the trailing 12 months.  

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