15
Morningstar FundInvestor
February 2
013
Emerging markets are volatile, and some investors
are prone to buying after rallies and selling after
downturns. It probably also reflects the fact that
investors are mostly in diversified foreign funds,
where emerging markets take up a small portion
of assets. These funds lag emerging markets’
10
-year return because developed markets lagged
over that time.
More intriguing was the asset class that had the
second-biggest gap: municipal bonds. Munis are prob-
ably the least-volatile asset class in the fund world
(short of money market funds), yet the average fund’s
4
.
1%
return shrunk to
2
.
7%
for the typical investor.
Looking at the returns of the muni long category, you
see very little reason for fear or greed. In the past
10
years, there was one year in the red (
2008
) and two
years of double-digit gains (
2009
and
2011
) but
generally modest single-digit gains. Even the one year
of loss was
9
.
5%
—not a big blow. Unlike equities,
investors were not scared off by the
2008
losses and
they boosted inflows to muni-bond funds from $
10
billion in
2008
to nearly $
73
billion in
2009
.
That was great timing. But then came a warning of
disaster as everyone became worried about govern-
ments defaulting in late
2010
and early
2011
. That’s
when some investors bailed to the tune of $
11
billion
in
2011
, leading people to miss out on the robust
10
.
6%
return in
2011
and possible
8
.
9%
gain in
2012
.
Since
2008
, flows seem to have followed headlines
more than performance, and this is a case where
it really hurt investors (not that chasing performance
is the way to go, either). While I’m sure some advi-
sors couldn’t talk their clients out of bailing out of
equities in
2008
, they should’ve been able to at least
explain that the fears about munis were overblown.
American Funds Sell Apple
Although most of the press on American Funds has
been negative, it deserves kudos for what looks like a
brilliantly timed trade. A number of funds, led by
Growth Fund of America
AGTHX
, sold off most of
their shares of
Apple
AAPL
in fourth-quarter
2012
just before the stock’s steep drop in January.
Vanguard Announces Expense-Ratio Changes
Vanguard announced a number of small expense-ratio
changes. Among the larger ones was
Capital Value
VCVLX
, where expenses fell to
0
.
47%
from
0
.
58%
.
Final Flow Data for 2012
If you ever need evidence that fund flows don’t drive
the markets, take a look at
2012
. We saw huge
inflows into bond funds and huge outflows from U.S.
equity funds, yet U.S. equity funds more than dou-
bled the returns of bond funds.
In total, $
105
billion left U.S. stock funds, while $
21
billion went into foreign-equity funds. Taxable-
bond funds took in an amazing $
265
billion despite
the minuscule yields in fixed income. Balanced
funds enjoyed $
21
billion in inflows, and munis took
in $
50
billion.
On a category basis, intermediate-bond funds took in
$
112
billion, short-term bond funds saw $
38
billion
in inflows, and high yield took in $
23
billion. The most
unloved categories were large growth at negative
$
39
billion, large value at negative $
16
billion, and
large blend at negative $
15
billion.
The funds with the greatest inflows were
Double
Line Total Return
DBLTX
at $
20
billion,
PIMCO
Total Return
PTTRX
at $
18
billion, and
Vanguard
Total Stock Market
VTSAX
at $
14
billion. The
most redeemed funds were American Funds Growth
Fund of America at negative $
32
billion,
Fidelity
Disciplined Equity
FDEQX
at negative $
9
billion,
and
Davis New York Venture
ISBAX
at negative
$
6
billion.
Stock-Fund Launches Were Strong in 2012
Despite big redemptions, we had
96
U.S. equity funds
launched and
89
foreign-stock funds launched,
while there were
84
taxable-bond fund launches and
a mere nine new muni-bond funds. The crown,
though, goes to the balanced-fund group, where
121
funds were launched. There have been positive
flows there, though the number is boosted by the fact
that you might see
10
funds come out at one time,
when a firm launches a suite of
529
college-savings
or target-date funds.
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