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Flows Rebound in October Led by Bond Funds

Net flows into mutual funds were positive in October, according to preliminary figures from Financial Research Corp. The overall positive flow of $13.3 billion was across all categories, in sharp contrast to outflows of $20.5 billion from all categories of funds in September.

Intermediate-term bond funds, however, led all other categories for the third consecutive month, suggesting that investors retain a conservative bias. Those funds garnered net flows of $3.1 billion.

Stock funds did better overall than in September. Large-cap value funds were in second place with net flows of $2.1 billion, the only stock category in the top five. Trailing close behind were domestic hybrid, short-term bond and intermediate government funds, all with $2.0 billion in net flows. Equities claimed five of the top 10 fund categories, in contrast to September, when no equity fund category placed in the top 10.

The fund attracting the most money was the PIMCO Total Return, which accrued just over $1 billion. Next in line was American Funds' Growth Fund of America with $647 million in net inflows, followed by Vanguard Group's GNMA with $597 million.

Investor psychology is still unsettled. According to Chris Cavanaugh, analyst at FRC, investing patterns are not normalized yet. In October, "a lot of money went into money market funds. Investors want to invest in the market but they don't know where to put it yet," he said. The $76 billion that went into money market funds was the second highest on record, surpassed only last January.

Cavanaugh sees investors as remaining cautious, trying to determine where the market is going before committing new money to equity. "They're going back but in limited numbers. You look at the numbers and you see that not everyone can follow the 'buy low, sell high' rule," he said. Good performance numbers in October and November may draw more people back into the markets, "following the performance in," he added.

With an appeal to cost-conscious, as well as some cautious, investors, Vanguard Group resumed its perch in top spot for fund group sales after a month in which PIMCO Funds ranked number one with $751 million. Vanguard had previously been number one.