Bond Funds Continue Bleeding in May

June 21, 2004 ( - Rising interest rates continued to exact a toll on bond mutual funds in May, sparking a record fixed income outflow.

Taxable bond funds gave back the most with a $12 billion loss in May while muni bond funds lost $5.5 billion for a whopping $17.5-billion total, according to   data aggregated by Lipper.  Calling the fixed income May outflow “a record for any month,”  Lipper researchers commented, “Probably some of the emotional scarring of overstaying the equity market beyond early 2000 is operating here now: people do not want to hold for the long term and give back their gains. (The outflow) would readily top the $13.3-billion panic drain of last August at the end of the scary upward pulse in interest rates at that time.”

As a whole, Lipper said mutual funds gave up $2 billion – despite a “modest” equity advance of $10.5 billion. Funds as a whole had a $44.6 billion outflow in April.

Asserting that equity fund players “are feeling somewhat ground down,” the Lipper researchers commented, “It is not that we have entered a major new bear phase, but simply that stocks have stopped going up and the world is not feeling like a friendly place….such feelings are hardly the stuff of which confident or large investment transactions are made.”

In the equity category, mixed and misc. equity funds led the way with a   $5.7 billion advance. World equity offerings were ahead by $3.2 billion, according to Lipper.

Looking at investment style, value funds ruled the equity roost with a $2.4-billion advance while their growth counterparts gave up $2.2 billion. Multi-cap funds were ahead by $4 billion over the month while large cap funds gave back $2.7 billion.

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