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U.S. Fund Investors Head for the Exits

Even though credit worries in Europe dominated the headlines, investors took out their frustrations on U.S. stock funds.

Sonya Morris, 06/16/2010

The past couple of months have given investors plenty to worry about, and they responded by yanking cash out of mutual funds in May. Overall, long-term mutual funds registered outflows of $13.2 billion for the month entirely because of massive redemptions from equity funds.

While money market funds also saw outflows, the size of those outflows declined considerably, suggesting that some of the money exiting mutual funds sought safety in money market accounts. The $20.6 billion in money fund redemptions in May was roughly 20% of the average outflow experienced so far this year.

Even though credit worries in Europe dominated the headlines, investors took out their frustrations on U.S. stock funds. Almost $15 billion left the asset class in May for the largest monthly outflow since March 2009--the month that marked the beginning of the market recovery.

The European economic woes brought an end to a long streak for international stock funds. After 13 straight months of steady inflows, the asset class saw redemptions of almost $6 billion in May.

Bond funds maintained positive flows for the month, but enthusiasm for the asset class cooled considerably. Taxable bond funds took in just $4.8 billion. That dwarfs the results seen in recent months and is the smallest monthly inflow since August 2008.


Source: Morningstar Direct Fund Flow

Taking Risk off the Table
As volatility returned to the market in May, investors responded by ditching riskier investments in favor of more sedate ones. That manifested itself not only in the broad move from equities to bonds, but also in the flows within the fixed-income space.

While most bond categories saw positive flows in May, high-yield bond funds had to deal with massive redemptions. All but 34 of the 146 funds in the group registered outflows in May. By the end of the month, $6.3 billion had left the category, which is the largest monthly outflow since our records begin in 1998.

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