Fixed-income funds held their siren-like draw for investors, contributing largely to long-term mutual funds' $16.8 billion in inflows in August, according to a Morningstar analysis.
"People are still very focused on bond funds," said Russ Kinnel, director of fund research at Morningstar, in an interview Tuesday.
It's not really a bubble, because unlike in the past where investors have bet the farm on risky investments, they're now pouring money into high-quality debt. But Kinnel said that these funds' low-return potential will eventually come back to haunt investors.
In the meantime, though, fixed income is king.
Bond-heavy Pacific Investment Management Co. topped the fund families benefiting from this trend, with inflows of $7.7 billion, followed by Vanguard ($4 billion of inflows, down from $4.9 billion in July). "Pimco and Vanguard are the prominent players in this space," Kinnel said. "Out of the 20 or 30 largest funds, Pimco's are the top three; it has the biggest funds out there when people want bonds, so right now everything's coming up Pimco."
That same month, domestic equity exchange-traded funds had outflows of $1.3 billion, ending a six-month run in which ETFs increased assets. The SPDR Standard & Poor's 500 ETF was hit the hardest, with outflows of $6.6 billion, as investors sought safer or higher-yielding strategies instead.
Domestic equity mutual funds also lost money in August, down $14.3 billion. American Funds and Fidelity, both of which specialize in actively managed funds, saw outflows of $5.5 billion and $1.6 billion.