Investors redeem $18.2B From U.S. Stock Funds in October

However, this net figure masked huge disparities in stock and bond flows. The combined $21.1 billion in U.S.-stock and international-stock outflows roughly mirrored the total $23.7 billion in taxable- and municipal-bond fund inflows. With $21.7 billion in inflows, taxable-bond funds had their best month since September 2010. Money market funds shed $19.1 billion. Municipal-bond fund inflows remained in positive territory, but with a modest $2 billion in new deposits.

The $18.2 billion in U.S.-stock outflows were the largest for the asset class since July’s $22.7 billion in net redemptions. Even passively managed U.S.-stock funds, which have actually enjoyed inflows in recent years, had $3.5 billion in outflows. This was just the third month in the past three years in which passively managed equity outflows surpassed $1.5 billion. Overall, U.S.-stock outflows hit $53.5 billion for the year-to-date.

As has been the case in recent months, the $2.9 billion in international-stock outflows would have been even worse if not for $2.1 billion in diversified emerging-markets equity inflows. (Most of the other major foreign-stock categories had outflows, outside of about $500 million that went into foreign large-value funds.) Emerging-market equities are underperforming U.S. stocks by a wide margin in 2011, but that hasn’t had any impact on monthly inflows. For the year-to-date through October, the diversified emerging-markets category has fallen 14.1%, while returns for the universally hated domestic large-growth category have been basically flat. Yet, emerging-markets equity funds have collected $18.7 billion so far in 2011 while large-growth funds have shed $30.4 billion. 

Intermediate-term and high-yield funds in October collected a combined $18.6 billion. No other bond category came close. October's haul was the category's largest since $12.4 billion in August 2010.

On the other hand, October 2011 will go down as a record month for high-yield bond funds, and there isn’t a close second. The group collected $8.8 billion in new money. To put this in perspective, the previous monthly record was $5.8 billion in March 2003.

The only two major categories with outflows were the new nontraditional bond category and short-term bond funds, which lost $1.8 billion and $1.3 billion, respectively.

Although inflows were still slightly positive for the category in October, four of the category's most prominent funds, including American Funds Capital Income Builder, Ivy Asset Strategy, IVA Worldwide, and BlackRock Global Allocation, had combined outflows of nearly $800 million.

To view the complete report, visit http://corporate.morningstar.com/octflows11/FundFlowsNov2011.pdf.