Strong 2011 returns and perceived safety led to continued popularity for bond funds last month, while domestic growth funds suffered redemptions.
May flows data show investors are putting money to work in nontraditional fixed-income holdings, as well as emerging-markets equities, for perceived better returns.
The Federal Reserve's bond purchases are contributing to greater inflows into fixed-income funds, while demand for stock funds is near multiyear lows.
ETF and open-end asset flows combined show a strong preference for bonds, emerging markets, and passive funds, while active U.S. stock fund managers and money market funds have suffered the brunt of outflows.
As economic concerns weighed, taxable-bond funds were the strongest asset gainers in May, but their inflows were only about half what they were the prior month, says Morningstar's Kevin McDevitt.
Income-hungry investors sought out niche fixed-income funds like bank-loans and non-traditional bonds in the first quarter, while the so-called great rotation into stocks is not yet confirmed.
After strong flows into stock funds earlier this year, investor interest in equities is waning as bond funds remain in high demand, says Morningstar's Mike Rawson.
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Morningstar's Christine Benz provides some useful tips for those getting their feet wet in fixed-income investing.
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