Even With War Rally, Bond Flows Still Dominate

In spite of the eight-day war rally in the middle of last month that drove major equity indexes up 11%, investors are still exercising caution, Lipper reported Monday. Bond fund inflows remained the strongest-selling sector among mutual funds.

Fixed income funds took in $9.8 billion during March, while equity funds had net flows of $1 billion. However, because of a loss of $26.9 billion from money market mutual funds, primarily because their returns have dropped to less than 1%, the industry lost $16 billion from all types of funds during the month.

While flows into equity funds were essentially a breakeven, the good news for the industry was that it reversed eight months of equity outflows.

But even among equity funds, the types of assets being bought reflect caution, Lipper analysts said. Balanced, income and convertible securities were among the most popular. Among bond funds, short/intermediate and taxable high yield were the best sellers. And much of the trading volume in equities was fueled by short sellers.

"Clearly, investors in both stocks and funds remain in a show-me mode," Lipper said. "We suspect it will take time for equity funds to return to consistent inflows."

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Money Management Executive
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