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By Christine Benz and Michael Rawson, CFA | 03-01-2013 12:00 PM

Investors Continue Their Quest for Yield

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.

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Christine Benz: Hi, I'm Christine Benz for Morningstar.

Investors continued their quest for yield in the first quarter, according to Morningstar's latest fund flow data. Joining me to provide some color on the latest data is Michael Rawson; he's a fund analyst with Morningstar.

Mike, thank you so much for being here. 

Michael Rawson: Thanks for having me, Christine.

Benz: When you look across the first-quarter data, Mike, you noted in a recent commentary that investors seem to have this appetite for yield and that's where they are putting their dollars. Let's talk about some of those categories that have been the beneficiary of that appetite for yield. 

Rawson: Certainly. Just to start off, the first quarter was a very strong quarter for fund flows, particularly if you go back to January, people were talking about maybe the great rotation. A lot of money came into the market and was going in all places, whether it be fixed income, even into equities, money was just flowing all over the place.

Benz: Coming out of money market mutual funds. 

Rawson: Coming out of money market mutual funds and into the long-term mutual funds, which was a good sign for investors' risk appetite overall. But certainly last month, we saw the flows into equity funds kind of moderate, flows into fixed income stayed strong. And within fixed income, investors were definitely willing to take on a little bit more credit risk than we have traditionally seen in the past.

Benz: So let's talk about some of those categories that exemplify the trend. Not necessarily government bonds, but the more credit-rich categories. 

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