Investors Continue to Favor Bond Funds in October

Investors made October a strong month for net inflows into open-end mutual funds, and gave exchange-traded funds another stellar period, according to Morningstar.

Net inflows for all mutual funds totaled $40.3 billion, pushing totals to $314 billion for the year-to-date through Oct. 31. That amount more than made up for the $154 billion that investors had pulled out of mutual funds by the end of October 2008.

Continuing a yearlong trend, investors continued to put the money into bond funds, pouring in $41.8 billion for the month.

Investors shunned U.S. stocks in October. Equity mutual funds had net outflows of $8.1 billion. October marks the second consecutive month when U.S. stock funds saw a drop in assets, and the fourth month of net outflows this year. As a result, U.S. equities have year-to-date net outflows of $4.4 billion.

Investors also showed a steady and growing preference for passive strategies. Dimensional Fund Advisors, whose funds are all passive, has seen net inflows of $5.8 billion through October 2009. “It is interesting to watch the allocations,” said David Falkof, a fund analyst for Morningstar. “Active funds have been all over the place. We’re seeing a fairly stable growth rate of flows to passives.”

Exchange-traded funds had $8 billion in net inflows for October, pushing their year-to-date total net inflows to $63.8 billion. Investors heavily favored international stock ETFs, which had net inflows of $6.5 billion. U.S. stock ETFs had net redemptions of $3.8 billion, the only asset class to lose money.