Sept. 18, 2009, 11:58 a.m. EDT
Fund flows suggest investors gaining confidence
Highs for flows into foreign stocks, debt, real estate funds suggest fear easing
By Sam Mamudi, MarketWatch
NEW YORK (MarketWatch) -- Mutual-fund investors' confidence in the markets appears to be steadily growing, with several fund categories seeing their biggest inflows of the year in the latest week.
Global and emerging markets bond funds, as well as global stock funds and sector funds, saw year-to-date high inflows during the week ending Sept. 17. At the same time, money-market funds saw their second-biggest weekly outflows this year, according to Boston-based fund tracker EPFR Global.
But investors still harbor some fears, as evidenced by the fact that U.S. bond funds saw the most inflows in the week, $2.8 billion. Figures released earlier this week showed that through August, more than 90% of mutual-fun inflows had gone to taxable-bond and municipal bond funds. See full story.
"The fact is that we're now a year away from the collapse of Lehman Brothers and the big crisis, and I think people are starting to feel that we're closer to the end of the recession," said Ian Wilson, managing director of fund data at EFPR Global.
"And money-market funds and bank accounts aren't giving a lot of interest on investors' money," he added.
The week saw about $3 billion flow into sector-specific stock funds, with commodity sector funds taking in $1.1 billion -- their highest inflows since EPFR Global began tracking them in early 2006. Real estate sector funds took in $925 million -- a two-and-a-half year high. Wilson suggested that part of the attraction of these funds is as a hedge against possible inflation.
Emerging markets bond funds also set a recent record, with inflows of $540 million representing an 87-week high.
Other categories seeing inflows in the week were global bond funds, high yield bond funds, financial sector funds, energy sector funds and technology sector funds.
U.S. stock market funds only took in $340 million overall, compared to $299 million alone for global emerging markets stock funds. Funds investing in Latin America, Russia and emerging markets, Europe and Asia also saw inflows.
Wilson said the flows into international, especially emerging markets, funds was due to investors chasing performance. Latin America stock funds are up more than 80% this year, according to Morningstar Inc., while emerging markets bond funds are up almost 30%, lagging only high yield bond and bank loan funds in fixed-income performance.
Money-market funds continue to see outflows, with more than three-fourths of their inflows from last year pulled out this year, said EFPR Global, which estimates year-to-date outflows are $332 billion.
With the exception of a mini-panic caused by the collapse of Reserve Primary Fund in September, money-market funds were the big winners among mutual funds last year, as investors headed to the sidelines to escape the market crash. Outflows from the funds suggest a desire to head back into the markets -- though the Treasury Department's program guaranteed money-market fund holdings as of Sept. 19 2008 expires Friday.