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Where Are Mutual Fund Investors Putting Their Money?

By Hal M. Bundrick

NEW YORK (MainStreet) ¿ Stock mutual funds are losing investors as fast as Congress is losing popularity. U.S. equity funds saw the largest monthly sell-off for the year so far, with $3.3 billion in redemptions for September, according to Morningstar. Meanwhile, municipal bond funds saw outflows for the seventh month in a row, seeing a $48.1 billion dollar investor exit since March. That outpaces the $44 billion outflow tax-free funds experienced for the entire period from November 2010 through August 2011.

Taxable-bond funds also took it on the chin, with a sell-off for the fourth-straight month. The well-known California bond shop PIMCO saw outflows of $6.5 billion for the month. Its flagship fixed income fund has seen the most rapid investor exits, with investors cashing out $30.2 billion from the PIMCO Total Return fund since June.

So where are investors putting their money?

Running in circles and looking for some place to hide, it seems mutual fund buyers are dashing out of one door, only to turn around and run right back in. New money poured into high-yield bond funds in September with $3.1 billion of inflows, reversing the previous month's similar outflow.

Bank-loan and nontraditional bond funds have also seen new investor dollars. The bank-loan category has an average return of 3.77% for the year to date, and saw $5.3 billion in new money during September.

Morningstar estimates net flow by computing the change in assets not explained by the performance of the fund.

Most of the money previously allocated to domestic stocks seems to be moving overseas. International-equity funds lead all fund categories with inflows of $7.3 billion, amassing a total of $103.2 billion in new investments for 2013 so far.

Vanguard is still in vogue, with the highest brand-level new money accumulated in September, gaining $3.2 billion, followed by Goldman Sachs and Dimensional Fund Advisors. Mutual fund families suffering the most redemptions for the month were PIMCO, Janus and American Century.

--Written by Hal M. Bundrick for MainStreet