A record $74 billion flowed into taxable bond funds in May and was the primary force behind the second straight month of positive flows into mutual funds and exchange-traded funds. According to Morningstar, long-term mutual funds and ETFs, which excludes money market funds, experienced $33 billion in net inflows last month, in stark contrast to March’s record $326 billion in net outflows. The reduced market volatility in May also reduced flows into money market funds. But money market funds have still taken in $1.1 trillion so far this year.
The appeal of taxable bond funds is attributed to fixed-income investors benefiting from the Federal Reserve’s unprecedented buying of corporate bond and bond Exchange Traded Funds (ETFs). In addition to taxable bond funds, sector equity strategies took in $8.5 billion in May, municipal bond funds took in $7 billion, commodity funds took in $4.6 billion, and alternative strategy funds had $1.4 billion worth of net inflows.
The biggest losers in May were domestic equity funds, which suffered net outflows of $29.6 billion, and international equity, with $27.5 billion in net outflows. Despite the Fed pumping billions to prop up the equity markets, volatility continues, much of which is due to the uncertainty regarding a second wave of the Covid19 virus.
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