More money than ever is flowing to mutual funds that buy both stocks and bonds, a sign that individuals are starting to return to equities during the most volatile bull market since at least 1942.
About $18.6 billion was added to so-called hybrid funds last quarter, the most since the Investment Company Institute started tracking the data in 1984. The record flows show that while investors remain skittish after the worst financial crisis since the Great Depression, they want more equities after the Standard & Poor's 500 index doubled since March 2009.
Europe's sovereign debt crisis and rising oil prices are spurring the widest price swings since 1942, providing investors with another reason to limit purchases after pumping 232 times more money into debt funds over the past two years. That's bullish to Fiduciary Trust Co. and Credit Suisse Asset Management, which say the doubts mean more money is available in what is already the biggest rally since 1955.
"It's a chicken step into the equity market," said Michael Mullaney, who manages $9.5 billion at Fiduciary Trust in Boston. "Very few investors, especially on the retail side, have been on board with this rally. That's why we think this market still has legs to run, because one major investor still hasn't shown up to the party."
Funds that buy stocks and bonds absorbed $1.24 billion in the week that ended April 6. Equity funds, with seven times more in assets, took in $2.44 billion. Bond funds got $5.22 billion, data from ICI, of Washington, showed.
"People have been traumatized by equities in the U.S. and have started to look for a more-balanced approach," said Adrian Zuercher, who helps oversee $150 billion of asset allocation strategies at Credit Suisse in Zurich. "Given all the money that has gone into government bonds, sooner or later they have to bring back some money into the equity segment."
Hybrids vary from balanced funds, which maintain a specific mix of equities and bonds, to flexible funds that can put any portion of their assets in stocks, debt or money market securities. They make up 6.5% of the $12.1 trillion U.S. mutual fund industry, according to ICI.
The average hybrid allocates 60% to stocks, 34% to bonds and the rest to cash, options, warrants and other securities, according to December data from ICI.
That compares with 58% in equities and 36% in debt the previous year.
St. Denis J. Villere & Co.'s $83 million Villere Balanced Fund, created in 1999, has returned 30% in the past 12 months, about three times more than the S&P 500, making it the top performer among 225 balanced U.S. equity funds tracked by Bloomberg News. The biggest holding at March 31 was 3D Systems Corp., a maker of imaging systems in Rock Hill, S.C., that has risen more than 230% in the past year.
"A lot of clients, having gone through the dark days of '08 and '09, want peace of mind," said George Young, co-owner with three family members of the century-old asset manager, which oversees about $1.5 billion.
At the same time, "they realize now that equities are a viable investment," he said.
