Taxable Bond Funds See Biggest Inflows Since May

November 11, 2011 ( - Thanks to demand for taxable bond funds, U.S. stock and bond mutual funds saw net inflows of $1.1 billion in October 2011.

October marked the second consecutive month of net inflows to long-term funds, after net inflows of $1.9 billion in September, according to Strategic Insight (SI), an Asset International company.   

Investors poured $19 billion into taxable bond funds in October, more than $16 billion of which went into high-yield bond funds and intermediate-term bond funds. Bond fund investors seemed to be either creeping out on the yield curve from short-term bonds or plunging into riskier high-yield bonds in search of higher income. October’s net inflows were the biggest monthly flows for taxable bond funds since they drew $20 billion in May.   

Muni bond funds, meanwhile, saw net inflows of $1.9 billion – up a bit from September’s $1.7 billion and evidence that investors are no longer worrying about widespread muni bond defaults.   

“With low interest rates set to continue and investors feeling risk-averse, we expect the search for income and safety to persist into 2012,” said Avi Nachmany, director of research for Strategic Insight, in a press release. “This should mean continued demand for select bond funds.”     

According to SI data, equity mutual funds saw net outflows of $20 billion, with $18 billion of net redemptions coming out of domestic equity funds. Although the S&P 500 index returned +10.9% in October, including sharp increases early in the month, investor behavior seemed more a reaction to the losses suffered in August and September.   

“Alternative” or less-correlated asset classes did well in October: commodities mutual funds, managed futures mutual funds, and long/short mutual funds all saw positive net flows during the month (and global tactical allocation funds also saw modest net inflows).   

Despite positive flows into emerging markets funds, international equity mutual funds aw net outflows of $2 billion in October. All together, equity funds have seen $1.4 billion in net outflows in the first 10 months of the year.   

Money-market funds saw net outflows of $21 billion in October, as institutional money funds in particular continued to experience net redemptions. In the first 10 months of 2011, money funds experienced total net outflows of $215 billion, as institutional investors have shunned their near-zero yields.  

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