As Confidence Rises, So Do Inflows

Investors Remain Wary as Bond Mutual Funds Grab Lion's Share of Money By SAM MAMUDI Mutual-fund investors' confidence in the markets appears to be rising, with several fund categories seeing their biggest inflows of the year in the latest week. Global and emerging-markets bond funds, as well as global stock funds and sector funds, saw the highest inflows this year during the week ended Thursday. At the same time, money-market funds had their second-biggest weekly outflows this year, according to Boston fund tracker EPFR Global. But investors still harbor some fears, as evidenced by the fact that U.S. bond funds had the most inflows in the week, $2.8 billion. Figures released earlier in the week showed that through August, more than 90% of mutual-fund inflows went to taxable-bond and municipal-bond funds. "The fact is that we're now a year away from the collapse of Lehman Brothers and the big crisis, and I think people are starting to feel that we're closer to the end of the recession," said Ian Wilson, managing director of fund data at EPFR Global. The week saw about $3 billion flow into sector-specific stock funds, with commodity-sector funds taking in $1.1 billion, their highest inflows since EPFR Global began tracking them in 2006. Real-estate-sector funds took in $925 million, a 2½-year high. Mr. Wilson suggested that part of the attraction of these funds is as a hedge against possible inflation. Emerging-markets bond funds saw inflows of $540 million, an 87-week high. Other categories with inflows were global bond funds, high-yield (or "junk") bond funds, financial-sector funds, energy-sector funds and technology-sector funds. U.S. stock-market funds took in only $340 million, compared with $299 million for global emerging-markets stock funds. Mr. Wilson said flows into international funds, especially emerging markets, were due to investors chasing performance. Latin America stock funds are up more than 80% this year, according to Morningstar, while emerging-markets bond funds are up almost 30%, lagging behind only high-yield bond and bank-loan funds in fixed-income performance. Money-market funds continue to see outflows, with more than three-fourths of inflows from last year pulled out this year, said EPFR Global, which estimates year-to-date outflows are $332 billion. Money-market funds were the big winners among mutual funds last year, as investors headed to the sidelines to escape the market crisis. Outflows from the funds suggest a desire to head back into the markets, though the Treasury Department's program that guaranteed money-market-fund holdings expired Friday.