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By Christine Benz and Russel Kinnel | 04-29-2015 10:00 AM

How Big Inflows and Outflows Are Affecting Popular Funds

Morningstar's Russ Kinnel discusses what impact outflows and inflows are having on Fidelity Contrafund, PIMCO Total Return, MetWest Total Return, and Dodge & Cox Income.

Christine Benz: Hi, I'm Christine Benz for Which specific funds have investors been buying and selling? Joining me to discuss some of the big ones is Russ Kinnel--he is director of fund research for Morningstar.

Russ, thank you so much for being here.

Russ Kinnel: Good to be here.

Benz: Russ, in your cover story for Morningstar FundInvestor, you took a look at what you call the most heavily traded funds in the U.S.--funds that have been seeing big inflows as well as outflows. I was hoping you could start by doing a little bit of stage-setting. When you see dramatic inflows or outflows from a given fund, does that set off alarm bells in any way? Does it hinder managers' tasks?

Kinnel: A little bit. Certainly, we want to really look closely at a fund that's getting either big inflows or outflows. It means not only that there are challenges for the managers making all those trades, but also it means there are going to be some big effects on the organization as a whole. Either they are going to be ramping up in people or, if they are getting redemptions, they may be cutting--or at least there are going to be some big changes. So, you want to take a close look; but also we know that a lot of our Morningstar readers are going to have these funds on their minds, which is why I wanted to talk about a lot of these funds with the really big inflows and outflows.

Benz: So, let's start with the outflows. We want to touch on PIMCO because that's been a big story in the realm of outflows, but let's start with an equity fund that is near the top of the list in terms of outflows--that's Fidelity Contrafund (FCNTX). Let's talk about what's going on there.

Kinnel: That's right. Contrafund has been run by Will Danoff for a very long time, but it's had some outflows. Now, I believe some of that is CIT conversion, which is similar to a mutual fund construct but not quite the same. It costs a little less. Some 401(k)s are opting to convert to CIT. So, some of that outflow number may actually not be outflows but just conversion into another vehicle.

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