2009 a Comeback Year for Mutual Funds

January 14, 2010 (PLANSPONSOR.com) - The year 2009 proved to be a recovery year for the fund industry after a brutal 2008 that saw shareholders dump their funds en masse, according to Morningstar Direct's latest Fund Flows Update.

Inflows predominated in 2009, with bond funds capturing the majority of new assets. Morningstar data shows net inflows amounted to $377 billion for 2009, and bond funds accounted for $357 billion of that total (see Bond Fund Rush Could be Slowing).

Meanwhile, U.S. stock funds bled assets, with an additional $8 billion in outflows in December taking the full-year total outflow to $26 billion.

International-stock funds fared better during the year, taking in $25.5 billion in flows, according to the report. However, this doesn’t make up for the $70.4 billion in outflows they experienced in 2008.

Morningstar said flows into international funds have been helped by the performance of emerging-markets stocks. Three of the top five international categories – diversified emerging markets, Pacific/Asia ex-Japan stock, and Latin America stock – are dominated by stocks from developing markets.

Vanguard funds led in the mutual fund recovery, taking in $94 billion in assets for the year. PIMCO followed with $83 billion in inflows.

However, several well-known fund families didn’t fare well in 2009. American Funds lost assets throughout much of 2009, with total outflows of $25.5 billion. Six American Funds offerings topped the list of the funds with the biggest outflows: Capital Income Builder, Washington Mutual, Investment Company of America, Income Fund of America, Capital World Growth & Income, and American Balanced.

Oppenheimer also experienced net outflows in 2009 to the tune of $2.5 billion. The firm’s taxable bond funds continued to lose ground, even as bond funds elsewhere were flooded with new assets. Morningstar speculated that with the blowup of the now defunct Oppenheimer Champion Income and big losses from its once popular Oppenheimer Core Bond grabbing headlines in 2008, it casts a cloud over the firm’s bond lineup. Oppenheimer’s equity funds also saw outflows.

Putnam, Van Kampen, Morgan Stanley, and Legg Mason/Western Asset fund families also ended 2009 in negative territory.

According to Morningstar, investors largely preferred active strategies in 2009. Active funds gathered $304.2 billion in assets for the year, while passive long-term funds took in $69.7 billion. However, investors pulled $52.9 billion out of active U.S. stock funds, while passive domestic-equity funds saw inflows of $26.2 billion.

Vanguard Total Stock Market Index and Vanguard Institutional Index accounted for $10.7 billion and $5.4 billion of those inflows, respectively.

The Morningstar report is at http://www.global.morningstar.com/decflows09.