Morningstar today reported estimated U.S. mutual fund and exchange-traded fund asset flows through October 2010. Investors contributed $26.8 billion to long-term mutual funds in October, nearly twice the assets added in September. Every asset class other than U.S. stock saw inflows during the month, but the pace of outflows from domestic-equity funds slowed. Redemptions of $6.3 billion from U.S. stock funds in October were much lower than outflows of $18.3 billion during the previous month. U.S. ETFs saw inflows of $13.1 billion in October which, along with market appreciation, pushed industry total net assets to $944.7 billion.
Additional highlights from Morningstar's report on mutual fund flows:
• International-stock funds and balanced funds experienced their best month since April, with inflows of $5.7 billion and $2.3 billion, respectively. Outflows continued for money market funds, as investors redeemed $16.6 billion in October. Although the exodus has slowed, money market funds' share of total mutual fund assets has dropped to 25.7% from 33.4% over the past year.
• Diversified emerging-markets funds took in $2.3 billion in October, accounting for roughly half the inflows into international-stock funds. Vanguard Total International Stock Index Fund saw inflows of $10.7 billion after Vanguard announced that the fund would replace Vanguard Emerging Markets Stock Index Fund, Vanguard European Stocks Index Fund, and Vanguard Pacific Stock Index Fund in its target-date lineup and in three funds of funds.
• Inflows into overall long-term bond funds have remained tepid, but the quest for yield has benefitted high-yield taxable-bond funds and, to a lesser extent, municipal-bond funds at the expense of short-term bond funds. Taxable-bond funds had solid inflows overall of $20.6 billion, but short-term bond funds have been supplanted in the rankings by world-bond and multisector bond funds, which absorbed $3.7 billion and $3.1 billion, respectively, in October. Municipal-bond funds took in $1.8 billion in October, but monthly inflows have been declining since September 2009.
• Dimensional Fund Advisors broke into the top-10 list of fund families by assets under management in October. Boosted by investor preference for passively managed funds, the firm has taken in nearly $7.5 billion in 2010, and about one-third of those assets flowed to the firm's emerging-markets equity funds.
Additional highlights from Morningstar's report on ETF flows:
• International stock topped all ETF asset classes in October with inflows of $9.2 billion. More than $25.1 billion has flowed into diversified emerging-markets ETFs since the beginning of the year, which represents 32% of all ETF inflows and nearly 76% of total net inflows into international-stock ETFs.
• U.S. stock ETFs gathered assets of $3.5 billion during the month despite outflows for some of the largest funds in the group. In addition to dividend-paying ETFs and other high yielding strategies, investors allocated capital to ETFs with exposure to technology and financials, two cyclical sectors that could potentially benefit from the effects of QE2.
• Commodities ETFs, the only asset class to see outflows in October, lost assets of $197 million. Outflows of $486 million from SPDR Gold Trust GLD and $331 million from United States Oil USO offset inflows into silver and natural gas ETFs.
• Vanguard has collected roughly 39 cents of every dollar in net inflows to U.S.-listed ETFs this year and introduced 16 new ETFs to the market in 2010. Vanguard's ETF assets increased by more than 72% over the past year, raising the firm's market share to 14.5% of industry assets.
To view the complete report, please visit http://www.global.morningstar.com/octflows10.
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