August saw the heaviest outflows of money from mutual funds since the financial crisis began in 2008, according to a new report from Morningstar.

The independent investment research firm says that redemptions of long-term mutual funds nearly doubled in the month to $32.5 billion, almost doubling the already high outflow of $17.1 billion from mutual funds in July.

The biggest loser was US stock funds, which saw net redemptions of $15.3 billion. But even once-popular international stock funds and balanced funds suffered net redemptions in August, with outflows of $2.9 billion and $2.3 billion, respectively.

The study found that as the debt crisis in both Europe and the U.S. deepened, risk aversion also spread from equities to bonds, with investors pulling $12.0 billion out of taxable bond funds in August, too. Bank-loan and high-yield bonds funds were particularly hard-hit, with bank-loan bond funds experiencing $7.3 billion in outflows and high-yield funds losing $5.1 billion in invested funds in the month.

In the ETF space, International ETFs saw a net outflow of $5.5 billion, the highest outflow of any ETF class. That represented the biggest monthly net redemption figure for international stock ETFs in three years.

The biggest gainer among ETFs in August was taxable-bond ETFs, which saw a net inflow of $4.3 billion. That compared to a net outflow of almost $2.0 billion for commodities ETFs.

One other relative bright spot for ETFs was U.S. ETFs, which eked out a net inflow of $947 million in August, but even that was a far cry from July’s inflow of $17.2 billion. Nonetheless, the gain meant that U.S. ETFs have made it through a full year with only one month of outflows.

The biggest gainer in the U.S. ETF space was stocks, with U.S. equity ETF’s pulling in a net $394 million in new money from investors.

Where did investors turn as they fled stocks and bonds?  The Morningstar report found them turning to money market funds, which saw inflows of a whopping $74.8 billion, the biggest increase for money funds since January 2009. The inflow to money market funds went halfway towards reversing the huge two-month outflow of $150.0 billion which the asset class had suffered in the prior two months.


Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access