Mutual Fund Inflows Continue Apace in 2010

The stock market began 2010 on a sour note, with all major indexes off more than 3% for the month of January. But that didn't keep U.S. investors away from mutual funds, which saw total net inflows of $44.5 billion.

U.S. stock funds reversed a four-month slide, taking in roughly $2.7 billion in assets. International-equity funds gathered more than $8.1 billion in assets, the biggest monthly inflow since December 2007.

And bond funds continued to dominate all other asset classes, as investors added $28.0 billion to fixed-income funds in January. Based on total net assets, fixed-income funds represent 30% of the mutual fund market, up from 19% at the end of 2007.

Fidelity Net Inflows Despite Big Outflows in Some Funds
Although U.S. equity funds returned to net inflows in January, large-growth funds continue to bleed assets. The category gave up $876 million in assets for its seventh-straight monthly outflow. Five Fidelity funds topped the list of funds losing assets:  Magellan (FMAGX) ($311 million),  Growth Company (FDGRX) ($143 million),  Independence  ($143 million),  Advisor Capital Development (FDTTX) ($139 million), and  Capital Appreciation (FDCAX) ($109 million). Fidelity also had the least-popular large-value and large-blend funds in January;  Fidelity Equity-Income (FEQIX) shed $797 million while  Fidelity Spartan U.S. Equity Index  experienced outflows of $640 million.

Despite these notable outflows, the majority of the funds in Fidelity's lineup gathered assets for the month, and the firm managed to register net inflows in January of almost $1.6 billion. Fidelity's target-date series funds took in $787 million in assets, helping to lift the firm into positive territory. Fidelity Strategic Advisers Value , which is only available to investors enrolled in Fidelity's portfolio advisory services, also had strong inflows of $667 million. However, that's a subadvised fund, so those assets don't stay in house.

Although the firm experienced almost $16.2 billion in inflows in 2009 and another $1.6 billion in January, Fidelity hasn't come close to making up 2008's outflow of $37.3 billion. The fund family's share of the open-end fund market (based on total net assets) has gradually eroded from 13% in 1999 to just less than 11% today. If you include exchange-traded funds in the mix, Fidelity's current market share stands at 9.5%.

Passive Strategies Gradually Gain Ground
Active funds still account for the lion's share of the mutual fund market. They held $5.9 trillion in net assets at the end of January, compared with $1.5 trillion for passive long-term funds (which excludes leveraged and sector funds).

However, passive funds have become increasingly popular with investors in recent years. That's partly due to the rise of the ETF market, but open-end index funds have also won investors' favor.

 Vanguard Total Stock Market (VTSMX) is the second-largest fund in the market, with $117.6 billion in net assets. Combined,  Vanguard Total Bond Market (VBMFX) and Vanguard Total Bond Market II (VTBNX) weigh in at $98.1 billion in net assets, making this the second-most-popular bond strategy in the market.

Including ETFs, index funds account for four of the top 10 U.S. stock funds, and four of the top 10 international-equity funds. As of January, passive strategies' market share amounts to 20%, up from 11% at the beginning of 2000.

This trend obviously works in Vanguard's favor because the firm has become synonymous with index investing. Including its ETFs, the fund family has seen its market share (of the combined ETF- and OE-market) edge higher from 11% in 1998 to more than 15% today. DFA has also benefited from the trend toward passive strategies. The firm has had net inflows in every calendar year in this decade, even in 2008 when almost every other firm experienced outflows. Over the course of the past 10 years, DFA's market share has grown from 0.4% to almost 1.4% at the end of January 2010.

Fund Family Highlights
American Funds experienced its seventh-straight monthly outflow in January. However, the level of outflows ($962 million) was much lower than 2009's pace. During the last six months of 2009, the firm's outflows averaged around $1.8 billion per month. The firm was helped by $889 million in inflows for  American Funds EuroPacific Growth (AEPGX). However, the usual suspects continue to top the list of funds with outflows, including  Washington Mutual (AWSHX),  Investment Company of America (AIVSX),  Capital Income Builder (CAIBX), and  American Balanced (ABALX). In addition,  Bond Fund of America (ABNDX) continued to lose assets, even amid the popularity of the asset class.

Combined, Davis Funds and Selected Funds (both of which are run by Davis Advisors) shed $477 million in January. Although the firm's funds staged a strong snapback rally in 2009, investors can't seem to shake the memory of 2008's sharp losses. The firm has seen steady outflows since late 2008. In total, Davis Funds and Selected Funds assets have declined from their $69.4 billion peak in October 2007 to $42.6 billion today.

 Ivy Asset Strategy (WASAX) staged yet another strong month in January. It took in $709 million in assets, second only to  BlackRock Asset Allocation (PCBAX) (which had inflows of $971 million) among balanced funds. This fund is the jewel in Ivy Funds' crown. At $20.3 billion in total net assets, it is the largest fund by far in the firm's lineup, accounting for almost 60% of the firm's total mutual fund assets.