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By Christine Benz and Michael Rawson, CFA | 05-15-2013 12:00 PM

No Great Rotation Into Equity Funds Yet

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.

Christine Benz: Hi, I am Christine Benz for After a strong start to the year, equity-fund flows looked tepid in April, while bond-fund flows continue to be robust. Joining me to provide some color on the latest fund-flow data is Michael Rawson. He is a fund analyst with Morningstar. Mike, thank you so much for being here.

Michael Rawson: Thanks for having me Christine.

Benz: Mike, let’s take this category by category, starting with domestic equity. We had a really strong start to the year. A lot of people were saying it’s the beginning of this great rotation where we will see investors embracing equity funds, but domestic-equity-fund flows weren’t all that great during April?

Rawson: No, they were kind of disappointing, particularly if you back out passive flows. So, passive flows have continued to be strong; there have been pretty persistent strong flows into passive index-based products. Flows to active equity actually were negative last month. So it was a little bit disappointing. Certainly we had to back away from that great rotation story of flows going into active equity managers because like I said, if you take away the flows to passive products, equity flows were actually negative.

Benz: International equity was somewhat a brighter story, pretty robust flows there. What kinds of products are investors buying?

Rawson: Sure, well interestingly enough, they are still buying passive products when they go internationally, as well. Particularly Vanguard Total International Stock Market had very strong flows last month. I think there is some more willingness to invest in Europe, so these core stock funds, of course, because Europe is such a large economy, they will dominate most broadly diversified stock funds. So there are some flows going back into Europe and emerging markets continues to be very strong. And so not only are investors choosing passive products, they are also tilting toward dividend-paying funds and value-type funds. So Matthews Asia Dividend Fund had strong flows last month.

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