While March’s fixed-income inflow wasn’t quite as bountiful at $9.8 billion as the $19 billion the month before (See February Bond Fund Flows Stay Strong) , funds in the high-yield taxable space “stole the show” in March with a $5.6 billion net inflow, according to the monthly mutual fund flow report from Lipper, Inc.
“Clearly investors were reaching for yield,” Lipper analysts wrote, pointing out the Emerging Markets Debt, Flexible Income, and corporate bond funds enjoyed inflows, while US Government and Treasury funds combined suffered a small outflow. Aside from the high yield funds, taxable short- and intermediate-bond funds took in about $5.5 billion in net inflows.
The Lipper analysts said the movement toward fixed income is likely to be a long-term development – driven in part by fund movements at US retirement plans. “So it appears that positive flows into bond funds will have some stickiness until well after stocks have put together a rally of several months duration,” they wrote. “Investors’ opinions and expectations take time to change, particularly when fear is a major driver.”
Muni bond funds got hit with moderate net March outflows, which Lipper attributed to continued publicity about state and local governments’ budget problems. Also, Lipper said investors redeemed about twice as much ($1.2 billion) of longer-term municipal funds as they did in short/intermediate funds.
Turning to equities, Lipper said equity funds had a $1 billion net inflow on the back of an eight-day rally on relief of uncertainties over the Iraq war. Among equity fund types, Mixed Equity ($1.6 billion) and S&P 500 Index ($1.3 billion) were in the black with inflows, while US Diversified, Sector Equity and World Equity all suffered small outflows. Multi-Cap funds remained favorites with a $2.4 billion inflow while Large-Cap funds suffered $3.8 billion in outflows.
The “soft spot” in overall fund flows in March, as it has been in recent months, were money funds, which saw a net $27 billion head for the door. Lipper said that was a major contributor in the $16.1 billion net outflow seen industrywide.