According to the monthly mutual fund flow report from Lipper, Inc., fixed income funds had a healthier inflow than at any time since August 2002. That follows a similarly strong January when bond funds gathered up more than $13 billion in new money (See Lipper: January Equity Fund Outflow First Since 1990).
Once again, Lipper wrote in a report, investors showed “preferences for income in hand” in their continued flight to the relative safety of the fixed income space. Lipper researchers said funds investing in high-quality issues as well as in high-yield securities ($3.2 billion inflows) turned in a particularly strong performance.
Investors also shied away from the long end of the bond market with short- and intermediate-term bond funds raking in more than $12 billion during the month while their long-term brethren pulled in a relatively meager net $4.5 billion. Also, February saw a $43-billion outflow in money market funds.
Equity Offerings Keep Losing Funds
Meanwhile, equity funds suffered another substantial outflow in February of $8 billion – following January’s loss of $1 billion from equity fund coffers. What equity fund buyers there were gravitated toward income-oriented offerings – pouring a $1.8-billion inflow into those funds. Lipper said balanced funds – offering both equities and fixed income – shed about $300 million during the month. Of all the equity fund categories, US Diversified cast off the most during the month with a $9-billion net outflow. International funds – with holdings in countries other than the US – took in $1.4 billion.
In terms of market capitalization, large-cap equity funds lost $6.5 billion and multi-cap funds shed $1.1 billion during the month.
Lipper researchers said investors shouldn’t expect equity funds to turn around over night – even if Iraq hostilities turn out as best as can be expected. “Equity fund flows will take some time to turn positive even after stock prices resume an upward trend,” the researchers wrote. “The emotional and wealth damage inflicted over the past three years will not disappear magically overnight even when one major uncertainty is resolved.”