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Investors Continue to Favor Bonds, International Stocks

Todd Bunton

The big inflows into domestic equity mutual funds in Janary did not carry over into February despite a rising stock market. In fact, over the last two weeks, more than $1.7 billion has flowed out of domestic equity, according to the Investment Company Institute.

Inflows into bonds remain strong despite record low yields, but this trend has been occuring for several years. Perhaps the biggest surprise in recent fund data is the inflow into world equity mutual funds (world equity funds are those that invest primarily in nondomestic corporations, but they still might have some U.S. exposure).

Over the last two weeks, more than $5.7 billion has flowed into world equity funds. And while domestic equity mutual funds saw tens of billions of dollars in outflows in 2011 and 2012, world equity funds saw a slightly positive inflow over that same stretch. You can see this trend in the chart below:

So why do think investors continue to pour money into international funds and not domestic ones? And when will the love affair with bonds finally end?

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