Investors poured over $26.8 billion into long-term mutual funds in October, nearly twice the assets added in September, Morningstar reported on Wednesday.
Other than U.S. equities, all the asset classes had inflows during October, according to the report. International equity funds had their best month since April, with inflows of $5.7 billion, continuing the pattern of strong flows into diversified emerging market equity funds. The good news is that the pace of outflows from domestic-equity funds slowed.
Diversified emerging-markets funds raked in $2.3 billion in October, about half the inflows into international-stock funds.
Meanwhile, redemptions of $6.3 billion from U.S. stock funds in October were significantly lower than outflows of $18.3 billion during the previous month. U.S. exchange-traded funds had inflows of $13.1 billion in October. These inflows along with market appreciation increased industry total net assets to $944.7 billion.
Investors took money out of money market funds, redeeming $16.6 billion in October. Although outflows have slowed, money market funds’ share of total mutual fund assets has tumbled to 25.7% from 33.4% over the past year.
Inflows into long-term bond funds remained slow as high-yield taxable-bond funds and even municipal-bond funds have won out over short-term bond funds. Taxable-bond funds had total inflows of $20.6 billion, while municipal-bond funds took in $1.8 billion in October, though monthly inflows have been declining since September 2009.
International equities topped all ETF asset classes in October with inflows of $9.2 billion. Over $25.1 billion has flowed into diversified emerging-markets ETFs since the beginning of the year, the report said, representing 32% of all ETF inflows and nearly 76% of total net inflows into international-stock ETFs. U.S. stock ETFs gathered assets of $3.5 billion during the month despite outflows for some of the largest funds in the group. Investors also allocated capital to ETFs with exposure to technology and financials, two sectors that may benefit from QE2. Meanwhile, commodities ETFs, the only asset class to see outflows in October, lost assets of $197 million.
Vanguard has come out a winner in the ETF market. The firm brought in about 39 cents of every dollar in net inflows to U.S.-listed ETFs this year and introduced 16 new ETFs to the market. Vanguard’s ETF assets increased by more than 72% over the past year, raising the firm’s market share to 14.5% of industry assets, Morningstar added.
Meanwhile, $64.2 billion has fled U.S. equities in 2010. While passively managed funds had inflows of $2.2 billion, actively managed funds had $8.5 billion in outflows. “While investors are embracing risks in other parts of the market, U.S. equity manager risk is not one of them,” the report noted.