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By Christine Benz and Shannon Zimmerman | 09-05-2013 12:00 PM

Stocks Making Up for Lost Ground

Most equity categories have recorded year-to-date inflows amid tempered investor interest in bonds, and several active fund shops are benefiting.

Christine Benz: Hi, I'm Christine Benz for After shunning stock funds for most of the past several years, investors have once again been buying them. Joining me to discuss what types of funds they've been buying is Shannon Zimmerman. He's associate director of fund analysis for Morningstar.

Shannon, thank you so much for being here.

Shannon Zimmerman: Good to be with you, Christine.

Benz: Shannon, we had seen this great series of inflows into bond funds really as equities went up and up and up. So far in 2013, we've seen a little bit of a reversal of that or a lot of a reversal, where investors have once again been buying equity funds.

Let's talk about what has been driving these flows.

Zimmerman: Sure. During the last three months, if you look at all of our bond categories, there's only one that has made any money at all. It's barely positive, and that's the bank-loan category. All the rest have declined over the last three months, and it feels a bit like the chickens are coming home to roost. Market watchers for a long time have been expecting the tide to turn because yields have been historically low for so long. There was really only up for them to go, and that seems to be what is happening. You never know if it's correlation, or if there's another dynamic that could be involved. But at the same time, that's been going on, investors have indeed been transitioning out of the fixed-income peer groups and into the equity categories.

Benz: And of course, we've also had really quite strong equity market performance.

Zimmerman: We have, and so maybe some performance-chasing is happening along the way, too.

Benz: When you look at fund flows, what you've seen is that we've seen very strong flows into exchange-traded funds and indexed products, but not so much actively managed funds.

Zimmerman: That's right. If you look at the flows into equity funds on a year-to-date basis, the vast majority of flows have been to Vanguard and have been into passive vehicles. But actively managed funds have not been completely left behind.

Benz: When you look at where the flows have been going on a category-by-category basis, which of the groups have been seeing the biggest inflows?

Zimmerman: Large blend by far. If you look at the assets that have come into both active and passively managed products [the large-blend category] is by far the biggest asset gatherer so far in the year, but most of the categories, all but two, as a matter fact--mid-cap growth and large growth--have enjoyed inflows. Among those that have enjoyed inflows, small value is the worst, but in absolute terms, it has done quite well with about $2.5 billion in inflows.

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