Mutual Fund Investors Cling to Safety of Bonds, Missing Stock Rally - Pimco Total Return Fund (PTTAX) Benefits

Talk this week has been that the retail investor has finally returned to the market in the past few days; further a Wall Street Journal article yesterday touted the explosion of volume in retail brokerage companies (Ameritrade, Etrade, et al) due to daytrading / speculation in the Citigroup (C), Fannie Mae (FNM), AIG's (AIG) of the world. So it's not just HAL9000 playing in those corners. Overall, it's like we are all Bobby Ewing.... had a bad dream there for 2 years, and now we're back at October 2007. What happened last year? Don't remember, just was a bad dream.

According to CBSMarketwatch, notwithstanding the factors above, many individuals have been hanging out in bond funds and missing much of the rally. Actually this data is staggering, 90% of new money into mutual funds in 2009 is avoiding equities. This coincides with anecdotal conversations I have had with people the past half year (mostly older than me) who have been burned twice in 1 decade with stocks, and just want to not lose money at this point. If that attitude will change in the future is unknowable, but many have lost so much they just might not have the means to take the risk... especially since they are much closer to retirement now that in the late 90s. Oh well, we don't really need individual investors - as long as the Fed keeps funneling money into our financial oligarchs, who in turn use the money to speculate - it's all good. It is their sandbox after all.

• Mutual-fund investors still smarting from the beating they took in stocks last year are continuing to pile into the relative safety of bond funds, causing many to miss out on the market's roughly 50% bounce from the March low.
• Through August, about $226.4 billion flowed into U.S. open-end funds in 2009, Morningstar Inc. said in research released Tuesday. "Fund firms are close to making up the ground lost in the second half of 2008, when investors pulled $251 billion out of mutual funds," the investment researcher said.
• However, of the year-to-date inflow, about $209.1 billion, or more than 90%, has gone into taxable-bond and municipal-bond funds.

August seemed to mark the return of the retail investor

• .... in August, when investors put $54 billion into all types of mutual funds. "That represents the largest inflow since February 2007. While that's certainly a positive sign for fund firms, it doesn't necessarily signal renewed enthusiasm for equities," Morningstar said.

But even August's monies still do not seem to be going into equities

• "As has been the case throughout much of the year, the vast majority of inflows have been to fixed-income funds," it added. "Approximately 60% of August's flows went to taxable-bond funds, and municipal-bond funds made up another 20%."
• ... fund investors' penchant for fixed income highlights their wariness of the stock rally after the financial meltdown ravaged their retirement plans.

Speaking of financial oligarchs, one of the new breed, PIMCO, is loving this development

• Bond-fund specialists like Pimco have benefited from investor skittishness. For example, Pimco Total Return Fund, which is run by bond guru Bill Gross, has been the top-selling fund throughout 2009, raking in nearly $5.5 billion of inflows last month alone, according to Morningstar.

Which means 10% of all "net" money going into funds in August went into 1 fund, PIMCO Total Return (PTTAX) - that is simply staggering.

• The Pimco fund "now holds a 13% share of the taxable-bond mutual fund market and weighs in at a whopping $177.5 billion in net assets," Morningstar said. "At its current size, it is almost twice as large as the next-most-popular fund, Vanguard Total Stock Market Index Fund (VTSMX)
• The Pimco Total Return Fund was up more than 11% for the year-to-date period through Sept. 14

Somewhere Bill Gross is smiling. [Feb 21, 2009: Fortune - Is PIMCO's Bill Gross too Powerful?] Toss a 0.9% annual expense ratio on $177 billion in assets and you've got some walking around money ...