Investors Blackball U.S. Stock Funds

January's inflows into U.S. stock funds proved to be a brief respite, as flows turned negative once again in February. Last month, investors withdrew $3.7 billion from U.S. equity funds, for the fifth outflow in the last six months. During the last 12 months, $21.3 billion has exited the asset class.

Every other major asset class took in assets in February, with taxable bond funds once again leading the way. Taxable bond funds have dominated inflows since January 2009. Although flows into this asset class peaked in the fall of 2009, the trend remains strong and is showing no signs of abating.

Muni-bond funds have also experienced steady and strong inflows during the past several months. Inflows during the first two months of the year already surpass $10 billion, for the strongest start the asset class has ever experienced. Investors continue to prefer the short end of the curve, with the muni-national short category accounting for around half of all muni-fund inflows. Money market funds, meanwhile, saw outflows of $71.1 billion in February, and $663.5 billion during the past 12 months. It's certainly possible that some of the money exiting low-yielding money markets has gone into short-term muni funds, as investors move farther out on the yield curve in search of more income.

International-stock funds registered $4.6 billion in inflows in February. Foreign large-blend is the most popular international category so far in 2010, with inflows of $6.3 billion. However, during the past 12 months, the diversified emerging-markets category has taken in about the same amount of cash as the foreign large-blend category. Each category has experienced inflows during the last year of more than $19 billion.

That suggests that while some investors prefer more diversified exposure to foreign stocks, others have been tempted to chase the returns of the hot emerging-markets category. Emerging-markets funds were up a whopping 90% on average through February 2010. That said, returns from foreign large-blend funds were nothing to sneeze at, either; the category produced average returns of 54% during the 12-month period.

Growing Into Category Killers
The growth of  PIMCO Total Return (PTTAX) has been well documented. It's grabbed market share by the fistful during the past several months, and it's now the largest mutual fund in the world. Just below this headline, though, other funds have quietly and steadily amassed enough market share to dominate their categories.

 Templeton Global Bond (TPINX) has taken in more than $14.5 billion in assets during the past 12 months, making it second only to PIMCO Total Return in bond inflows. With almost $28.8 billion in total net assets, it represents more than 27% of the world-bond category, and it's twice as large as its two closest competitors,  Oppenheimer International Bond (OIBAX) and  American Funds Capital World Bond  (CWBFX). Given the strong inflows during the past 12 months, it's the most popular fund in Franklin Templeton's lineup by a long shot. Based on total net assets, the fund represents 10% of the firm's mutual fund asset base, second only to Franklin Income, which has a 17.5% share.

 PIMCO Short-Term Bond  (PTSHX), which despite its name sits in the ultrashort bond category, has also seen significant growth during the past 12 months. During that period, it has experienced inflows of $6.1 billion, and its total net assets now stand at $10.6 billion. That represents a third of the assets in the ultrashort bond category and makes it the fifth-largest PIMCO mutual fund. This fund, which follows a fairly circumspect approach, held up fairly well in 2008, a time when the category witnessed some spectacular blowups. That has likely worked in the fund's favor during the recovery. Shareholders tend to perceive ultrashort bond funds as just a shade riskier than money market funds, and they were likely shocked by the double-digit losses posted by some category funds in 2008.

Target-Date Funds Power New Fund Growth at Fidelity
Target-date funds remain popular with investors, and they have held on to their shareholders, even during periods of stress. For example, in 2008, when just about every other fund category was bleeding assets, target-date inflows held steady. That's one big reason why this has continued to be an area of growth for many fund companies.

Many of the fastest-growing new funds (those that have launched during the last six months) are associated with target-date funds. For example, Fidelity Series Commodity Strategy (FCSSX), which is one of the underlying funds in Fidelity's Freedom Target-Date series, has taken in more than $2.1 billion since its October 2009 launch. It has quickly become one of the most popular mutual funds in the commodity asset class. Another new underlying fund, Fidelity Series Inflation-Protected Bond Index , has gathered almost $1.4 billion since its debut at the end of September 2009.

JPMorgan started off 2010 with a bang, with total year-to-date inflows of $5.3 billion for the firm's best start ever. During the past 12 months, it's taken in $29.8 billion, which is second only to Vanguard and PIMCO. The firm's bond lineup has driven that growth, propelled by strong flows into the Strategic Income Opportunities (JSOAX),  Core Bond  (PGBOX), Short-Duration (OGLVX), High-Yield (OHYAX), and Mortgage-Backed Securities (OMBAX) Funds. Taxable bond funds account for almost three fourths of the firm's inflows during the past year. JPMorgan Strategic Income Opportunities was the third-most-popular fund in February, second only to PIMCO Total Return and Templeton Global Bond.

T. Rowe Price has also gotten off to a solid start in 2010, with inflows of $3.8 billion during the first two months of the year. That's the firm's strongest start since 2007 and its second-best start ever. The firm's market share has gradually edged higher, increasing from 2.91% this time last year to 3.17% today. Like other firms, it's seen strong inflows into its bond funds, with  New Income  (PRCIX),  Short-Term Bond  (PRWBX), and  International Bond (RPIBX) taking in the most assets during the past 12 months. However,  T. Rowe Price Value (TRVLX) has seen more inflows in 2010 than any other fund in the firm's lineup.  T. Rowe Price Equity Index 500  (PREIX) has also proved popular with investors recently, and it has gathered more assets than any of the firm's equity funds during the past 12 months, in spite of the firm's emphasis on active management.

International Value Advisers, the firm founded in late 2007 by First Eagle alums, has seen impressive growth since its two mutual funds-- IVA Worldwide  and  IVA International  --got up and running in October 2008. Since then, the firm has taken in almost $3.8 billion in assets. IVA Worldwide, with almost $3.7 billion in assets, is now the sixth-largest fund in the world-allocation category.

Manning & Napier has been quietly gaining market share during the past few years. The firm managed to take in $1.6 billion in assets in 2008, when most other fund firms lost ground. And flows have steadily picked up steam since then. The firm gathered $4.2 billion in 2009, and inflows amount to $827 million so far in 2010.  Manning & Napier World Opportunities  has been the firm's biggest grower by far, gathering more than $3.0 billion in assets during the past 12 months. It's one of the fastest-growing foreign large-blend funds and now stands at $5.2 billion in total net assets.