Investors dump stock funds, pile into bonds

Investors pulled more than $130 billion out of mutual funds that invest in stocks last year, as roller-coaster volatility and a lack of returns made bond funds more attractive, new research shows.

For the year ended Dec. 31, all equity mutual funds saw net cash outflows of $130.32 billion, according to the Investment Company Institute. That's more than a 250 percent increase over the outflows seen in 2010, when investors pulled $36.69 billion from their mutual funds that invest in stocks.

After adding in dividends but subtracting inflation, the benchmark S&P 500 delivered a total return of essentially nothing in 2011, all while suffering one of its most volatile years in history.

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Meanwhile, bonds might be paying paltry yields, but their relative perceived safety had investors scooping up the asset class. Mutual funds that invest in taxable bonds saw net cash inflows of $136.54 billion in 2011. However, the rush into bonds eased sharply from the prior year, when taxable bond funds enjoyed net cash inflows of $230.15 billion.

See the table, courtesy of ICI, below:

Hybrid funds, which invest in both stocks and bonds, also saw an increase in investor interest. Net cash inflows rose to $29.56 billion in 2011 from $23.12 billion a year earlier.

Despite offering solid gains in 2011, headlines about local government bankruptcies scared investors out of tax-free municipal bonds. Muni bond funds saw net cash outflows of $11.78 billion in 2011, a reversal from 2010 when they had net cash inflows of $11.23 billion.

Money-market funds, which offer essentially negative returns after inflation, saw massive outflows too, but the flight of cash dropped sharply from the previous year. Money markets suffered net cash outflows of $123.87 billion in 2011, down from more than half-a-trillion dollars in net cash outflows in 2010, ICI said.