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Interpreting Mutual Fund Flow Data

According to the May 2010 Morningstar Direct Fund Flows Update, investors continue to draw money out of money market funds at a record pace. In April alone, investors pulled out $118.8 billion. Year-to-date (“YTD”) in 2010, money market outflows now total $443 billion, which surpasses the entire amount drawn out or money market funds in 2009 – in just four months!

So where is the money going? Overall, U.S. open-end mutual funds took in $40.9 billion in assets during the month of April. On a year-to-date basis, inflows have totaled $165.1 billion. That’s well ahead of last year’s pace, when funds took in just $51 billion over the same timeframe. Bond mutual funds appear to be the biggest benefactor of the inflows accounting for 68% of the fund inflows thus far in 2010.

What this suggests to us, at Hennion & Walsh, is that investors are no longer satisfied with the minimal yields of money market funds and growing more comfortable putting their money back into the capital markets. However, perhaps attributable to lingering effects of the pain caused during the dramatic downturn in the markets in 2008, investors seem to just be “dipping their toes back into the investing waters” by re-allocating money market fund investments into bond fund investments. With this said, there is some positive momentum building now in U.S. stock mutual funds thanks to a strong showing in April. This is a significant reversal to the net withdrawals that we saw in this category in 2009.

 

 

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