Investors Blackball U.S. Stock Funds

January's inflows into U.S. stock funds proved to be a brief respite, as flows turned negative once again in February. Last month, investors withdrew $3.7 billion from U.S. equity funds, for the fifth outflow in the last six months. During the last 12 months, $21.3 billion has exited the asset class.

Every other major asset class took in assets in February, with taxable bond funds once again leading the way. Taxable bond funds have dominated inflows since January 2009. Although flows into this asset class peaked in the fall of 2009, the trend remains strong and is showing no signs of abating.

Muni-bond funds have also experienced steady and strong inflows during the past several months. Inflows during the first two months of the year already surpass $10 billion, for the strongest start the asset class has ever experienced. Investors continue to prefer the short end of the curve, with the muni-national short category accounting for around half of all muni-fund inflows. Money market funds, meanwhile, saw outflows of $71.1 billion in February, and $663.5 billion during the past 12 months. It's certainly possible that some of the money exiting low-yielding money markets has gone into short-term muni funds, as investors move farther out on the yield curve in search of more income.

International-stock funds registered $4.6 billion in inflows in February. Foreign large-blend is the most popular international category so far in 2010, with inflows of $6.3 billion. However, during the past 12 months, the diversified emerging-markets category has taken in about the same amount of cash as the foreign large-blend category. Each category has experienced inflows during the last year of more than $19 billion.

That suggests that while some investors prefer more diversified exposure to foreign stocks, others have been tempted to chase the returns of the hot emerging-markets category. Emerging-markets funds were up a whopping 90% on average through February 2010. That said, returns from foreign large-blend funds were nothing to sneeze at, either; the category produced average returns of 54% during the 12-month period.

Growing Into Category Killers
The growth of PIMCO Total Return PTTAX has been well documented. It's grabbed market share by the fistful during the past several months, and it's now the largest mutual fund in the world. Just below this headline, though, other funds have quietly and steadily amassed enough market share to dominate their categories.

Templeton Global Bond TPINX has taken in more than $14.5 billion in assets during the past 12 months, making it second only to PIMCO Total Return in bond inflows. With almost $28.8 billion in total net assets, it represents more than 27% of the world-bond category, and it's twice as large as its two closest competitors, Oppenheimer International Bond OIBAX and American Funds Capital World Bond CWBFX. Given the strong inflows during the past 12 months, it's the most popular fund in Franklin Templeton's lineup by a long shot. Based on total net assets, the fund represents 10% of the firm's mutual fund asset base, second only to Franklin Income, which has a 17.5% share.