Shaken by high unemployment, market volatility and ongoing concerns about a recurring worldwide recession, U.S. investors have entrusted only a projected $80 billion to stock and bond funds in 2011, Strategic Insight reported Monday.

This is down 67% from the $246 billion in net inflows to U.S. stock and bond funds in 2010 and 78% less than the $374 billion in flows in 2009. The data is based on long-term, traditional mutual funds and is exclusive of exchange-traded funds and variable annuity sub-accounts.

Driving this steep decline, Strategic Insight said, is accelerated withdrawals from U.S. equity funds, lower inflows to international equity funds, a growing disenchantment with bond funds, and an overall aversion to the increasing volatility in the markets.

Banks have been the beneficiaries of this risk-aversion, with their deposits growing by about $2 trillion in the past few years, Strategic Insight said.

“The drop in stock and bond mutual funds in 2011 reflects both a pause for some investors, as well as a shift for others, in terms of what will engage investors and bring them back to the markets,” said Avi Nachmany, director of research for Strategic Insight. “Increasingly, alternative, non-traditional, flexible and global strategies are becoming more important parts of the investor portfolio. Today, the mutual fund industry is rife with product innovation that is creating a slew of funds that will help redefine asset allocation.”

This year has seen only five months of positive total returns, compared to eight positive months in 2010 and nine in 2009, Strategic Insight analysis found.

Lee Barney writes for Money Management Executive.



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