Separate Accounts Saw Equity Rebound in Q1

June 9, 2009 ( - Investors showed continued confidence in U.S. stock separate accounts and collective trusts in the first quarter of 2009, Morningstar said.

The fourth quarter’s $70 billion outflow from international stock and U.S. stock assets classes reversed in the first three months of 2009, with $67 billion of positive net flows, according to Morningstar Fund Flows. The category that received the most inflows ($27 billion, or 40%) during the first quarter was large blend. 

Large growth gained $23 billion and large value gained $14 billion. Morningstar said this indicates that investors’ demand for domestic stocks has remained steady, but investors might possibly be reacting to the perceived “safety” that large-cap stocks have to offer.

Investors pulled about $5 billion out of the small blend category, largely accounted for by T. Rowe Price losing $2.4 billion of assets from its Small-Cap Value II (separate account) Strategy, Morningstar data showed.

The largest outflows came from the taxable bond asset class, which lost $73 billion in the first three months of 2009 as a follow-up to the fourth quarter’s record $212 billion in outflows. The intermediate-term bond category lost $39 billion—over half of the taxable bond asset class’ net outflow.

Long-term bond products accounted for another $19 billion of the total outflow. Morningstar cited possible explanations for taxable bond products experiencing outflows, including the slight narrowing of credit spreads, the realization that domestic interest rates don’t have much room to fall further, anemic cash flows in the corporate sector, and a March equity rally.

Appetite for international exposure lessened, as investors fled because of recent performance. The International Stock broad asset class lost $6 billion during first quarter of 2009, with the Foreign Large Value category losing $10 billion in outflows. Some international categories did see positive inflows, such as Foreign Large Blend with $4 billion.

Janus Capital Management gained the most ($32 billion) in separate account and CIT assets. Other money management firms with big gains in unregistered vehicles included Prudential Retirement and PIMCO with $17 billion and $15 billion, respectively, according to the report.

Ellie Behling