Morningstar: Fixed-income funds now 30% of mutual fund market

Mutual funds saw inflows of $44.5 billion in January, according to report released today by Morningstar Inc.
Domestic-stock funds gathered $2.7 billion in assets, reversing four consecutive months of outflows, while international-equity funds took in more than $8.1 billion.
Bond funds continued to dominate all other asset classes, with investors adding $28 billion to fixed-income funds during the month.
Fixed-income funds now represent approximately 30% of the mutual fund market, up from 19% at the end of 2007.
The current popularity of bond funds is the result a few factors, said Sonya Morris, associate director of fund analysis at Morningstar.
“Investors got a wake-up call in 2008,” she said, referring the to stock market’s decline.
That caused them to “reassess their risk tolerance” and “make adjustments” favoring bonds, Ms. Morris said.
Another reason for the popularity of bond funds is that investors are “hungry for yield, and they can’t get it in traditional cash products,” she said.
Finally, having seen that bonds outperformed stocks in 2008 and much of the last decade, some investors are simply chasing returns, she said.
The report also noted that although active funds still dominate the mutual fund market, passive strategies have increased in market share to 20%, from 11% at the beginning of 2000.
Despite significant outflows from several of its large-cap funds in January, Fidelity Investments registered net inflows of nearly $1.6 billion.
On the heels of a positive January and coming off inflows of nearly $16.2 billion in 2009, however, Fidelity has not come close to making up 2008’s outflow of $37.3 billion. Meanwhile, American Funds, from Capital Research and Management Co. experienced outflows for the seventh straight month, although the pace of the firm’s outflows has slowed.
Following strong inflows in 2009, U.S. exchange-traded-fund flows dipped into the red to kick off 2010, with $16.7 billion in net outflows in January.
But much of those outflows were the result of the fact that the SPDR S&P 500 ETF (SPY) from State Street Global Advisors, whose massive size and heavy trading activity tends to skew ETF flow data, had more than $15.1 billion in outflows in January.
International-stock ETFs took in $888.2 million in net assets last month, led by the Vanguard Emerging Markets ETF (VWO), from The Vanguard Group Inc., which saw $894 million in net inflows.
Over the past year, Vanguard’s ETF assets have more than doubled, and the firm’s ETF market share has grown to about 12.4%, from 8.5% a year ago.