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By Jason Stipp | 12-13-2011 02:00 PM

Fund Investors Lose Appetite for Risk-Taking

Many investors cashed out of core domestic and international stock mutual funds in November, while emerging-markets funds remain popular despite a recent correction.

Jason Stipp: I'm Jason Stipp for Morningstar.

Morningstar has just released our November fund flows data. This is data on where investors have been putting their money into the mutual funds, and where they've been taking money out. It gives some interesting insights on recent investor behavior.

Here with me to dig into the details is Morningstar's Kevin McDevitt. He is an editorial director on our fund research team.

Kevin, thanks for calling in today.

Kevin McDevitt: Thank you, Jason.

Stipp: Kevin before this conversation, you said to me that there are two words that in some ways sum up some of the broader trends that you've seen in the fund flow data for November. What is it at the top level that you say characterizes these fund flows?

McDevitt: It was really a "risk off" month in November, and you saw that primarily in the outflows out of both U.S. stock funds and international stock funds. And then on the flipside of that, there has been strong inflows into taxable bond funds and municipal bond funds as well. And on top of that, you saw a real resurgence into money market funds too.

Stipp: On the fixed-income side, did you also see similar trends, where investors were shying away from risk?

McDevitt: Yes, you did. It's interesting. In the early part of the year, you saw very strong inflows into high-yield bond funds, bank-loan funds, and really more of the credit oriented side of the categories of those asset classes.

And now you're seeing the opposite. You're seeing more of the core, more conservative fund groups, such as intermediate-term bond funds, muni national intermediate term bond funds, short-term bond funds, and even government bond funds, which had been seeing outflows, but after their great returns in recent months, you've seen a real resurgence into those more "conservative categories," where there is greater perceived safety.

But also, at least for this year, you haven't had to make a trade-off in terms of return. Those have also been the areas, again, more the core taxable bond and core muni bond categories, that have seen the best returns, too.

Stipp: So, I know there has been some tension between the quest for yield--and we still see that fixed-income yields are pretty low--and the quest for safety. So, given recent market volatility, it seems like that quest for safety is winning out, at least right now?

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