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Week In Review


Bond, Stock Funds Reap $136B in 2Q09, Best Sales Since First Quarter of 2007

Investors showed strong confidence in long-term mutual funds in the second quarter, boosting sales in bond and stock funds by $136 billion, Strategic Insight reported. It was the strongest quarter for sales since the first quarter of 2007, when long-term mutual funds drew nearly $150 billion.

"Despite continued economic uncertainty, the mutual fund industry has enjoyed remarkable stability relative to other financial services sectors," noted Avi Nachmany, director of research at Strategic Insight. "Stock and bond funds are the core of the fund industry, and the robust inflows to both in the second quarter are a testament to the long-term perspective of most fund investors."

The biggest seller was bond funds, which drew net inflows of nearly $90 billion. Equity funds took in $47 billion, with one-third of that money going into international stock funds.

Noting that investor confidence has been slowly rising since the market hit bottom on March 9, Strategic Insight Senior Research Analyst Loren Fox added, "Including June, equity funds have now enjoyed three straight months of solid inflows. Investors are tiptoeing back into riskier asset classes, and while the recent stock market retreat slowed equity fund inflows, they would rebound if the second half of 2009 experienced an economic recovery."

39% of Managers Expect Earnings Boost by Sept.

More investment managers expect corporate earnings to increase in the next three months, and a majority expect global gross domestic product growth to accelerate in the next six months, according to a survey of 70 institutional managers by Northern Trust Global Advisors.

The quarterly poll said 39% of participants think corporate earnings will increase in the next three months, compared with just 1% a quarter earlier. Fifty-eight percent of managers expect global inflation to increase in the next six months, compared with only 17% in the first quarter.

The survey reported a decline in managers who believe the market, as represented by the Standard & Poor's 500, to be undervalued. Only 51% viewed the index as undervalued, compared with 80% in the first quarter.

One-Third of Managers Moving Back Into Equities

After 56% of fund managers cut their equity exposure in the first five months of the year, in June, 32% said they would increase their equity investments, and 14% said they would hold them steady, according to a survey by the U.K.'s Association of Investment Companies.

"Given that the credit cycle is now entering an expansionary phase, we see clear opportunities in financial stocks going forward and have, therefore, allocated more into these financial stocks in recent months," said Shaun Miskell, an analyst with Blue Planet Investment Advisers.

Retirees Worried About Finances Doubles to 49%

A full 49% of retirees are insecure about their financial future, up from only 20% who were afraid a year ago, a survey conducted by LIMRA, the Society of Actuaries and the International Foundation for Retirement Education found.

Sixty-one percent are working with a financial adviser, up from 56% in 2008.

The survey was conducted among retirees between the ages of 56 and 77 with $100,000 or more in investable household assets.

Forty-three percent said their risk tolerance has decreased from a year ago. Among this group, 79% said they were concerned about the economy, 45% feared rising inflation, 39% said they don't have an adequate time horizon to recoup losses, and 28% reported that the decline in their home's value is upsetting.

"Retirees are definitely feeling the effects of the 2008 financial crisis, and have begun changing their behavior," said Sally A. Bryck, associate research director at LIMRA. "While seven in 10 respondents said they can still cover their basis expenses and afford a few extras, the number who said they spend money on whatever they wanted dropped sharply from 38% to 22%."

64% of Investors Focus on Debt, 15% on Retirement

Sixty-four percent of the calls going to Financial Finesse, which provides financial counseling to employees, are about debt reduction and budgeting, whereas only 15% of the calls are about investing and retirement planning.

"In their concerns about reducing debts and cutting expenses, employees are ignoring retirement planning," according to a report by Financial Finesse. "The credit crisis was the first financial crisis to hit us. The retirement crisis will be the next. We believe it will be both more significant and more prolonged than the current economic crisis."

With 11% of companies either reducing or eliminating their 401(k) matches, balances down 20% or more, employees either reducing or halting their contributions, and hardship withdrawals on the rise-Americans are heading for a paltry retirement.

Reducing debt is obviously very important, but people may be overreacting to the financial crisis and ignoring their inevitable needs in retirement, said Liz Davidson, chief financial officer of Financial Finesse.