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By Jason Stipp and Michael Rawson, CFA | 11-13-2012 12:00 PM

Investors Still Beating a Path to Bonds

October data show continued inflows for bonds (including riskier fixed-income assets), while investors withdrew money from U.S. stock mutual funds and ETFs.

Jason Stipp: I'm Jason Stipp for Morningstar.

We crunched the numbers on October asset flows--that's where investors are putting and pulling their money--and surprise, surprise, investors still are interested in bonds.

Here with me to dig into the details is Mike Rawson, fund analyst with Morningstar.

Thanks for joining me, Mike.

Mike Rawson: Thanks Jason.

Stipp: So, October data showed a continuance of assets flowing into bond funds. This is something we've seen for a while. What were the numbers, and how did they compare to the trend that we have seen?

Rawson: So about $30 billion went into taxable bond funds last month, and that's the continuation of a trend we've seen all year, really for the last several years. About $220 billion year-to-date have gone into bond funds. And while we saw strong inflows into bond funds during the financial crisis, but what's happening recently is these inflows into bond funds have kind of reaccelerated. And it's a bit surprising, because the equity market volatility has kind of calmed down a bit, and up until recently valuations were relatively attractive in equities, but we still see investors continue to flow into bond funds.

Stipp: And we've seen, on the flipside, outflows from especially U.S. equity strategies. And interestingly, outflows on the mutual fund side and on the ETF side, which is maybe something that we haven't seen on the ETF side as much. Can you talk about the trends there?

Rawson: Generally, flows into U.S. equity ETFs have been positive, but over the past several months, U.S. equity ETF flows have been a little bit weaker than we normally have seen. I think it points to the fact that the market is starting to get pretty much fairly valued, or closer to fair valuation, so I think investors are little bit more risk averse in terms of putting new money, even into passive strategies.

Stipp: As part of your analysis, Mike, you also looked back longer-term at some of the trends of investors and their long-term assets between equity and fixed income, and the shifts that we've seen. They are pretty dramatic and eye-opening. What did you find there?

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