Flows into municipal bond mutual funds remained steady last week in the face of a rough week for bonds.
Investors during the week ended Oct. 27 entrusted $432.9 million to municipal funds that report their figures weekly, according to Lipper FMI.
This was the second straight week of inflows in the $400 million range, representing some stability after a tail-off in flows that began in August.
All funds, including those that report their figures monthly, have been posting an average inflow of $154.4 million a week the past four weeks — a decisive slowdown from the $1 billion-plus pace in August and September.
Still, flows into muni funds have been positive for all but three weeks since the beginning of 2009. Funds set an inflow record last year with $69 billion , according to the Investment Company Institute.
Flows began this year still hot, and abruptly cooled off in the spring. With a rebound late in the summer, funds have reported about $31.8 billion in inflows so far this year. They were easily on pace to notch the second-heaviest annual inflow ever, but with the recent slowdown are now set to cut it close.
Investors handed municipal funds $38.3 billion in 1993, which is just about what they are on pace for this year.
Gene Gard, who co-manages eight tax-exempt funds with $1.2 billion in assets for Dupree Funds, said flows into his funds have been pretty stable lately even though nominal yields are very low.
Dupree’s flagship $900 million Kentucky fund, with an average maturity of 14 years, yields around 3.7%.
“Compared to the alternatives to being in the muni market right now, there’s just not a lot out there,” he said.
Gard said Dupree’s tax-exempt funds, which are all state-specific, tend to have more consistent flows than the overall industry.
Other fund complexes sometimes get big cash influxes when times are good while money bleeds out when times are bad.
That places many funds in the unenviable position of having to invest a big chunk of money when yields are sinking or having to sell bonds when yields are rising — precisely the opposite of the optimal strategy. The latest inflow came against a backdrop of a cool-off in the municipal bond market, following Treasuries.
The benchmark 10-year triple-A municipal bond weakened nearly 20 basis points in the seven days tracked in the Lipper report, according to Municipal Market Data. The sector delivered a negative return of 0.4% during the week, based on the Standard & Poor’s/Investortools municipal bond index.
Municipal funds posted a loss of $1.05 billion on their holdings for the week.Because the losses on bonds outstripped the inflows, the industry’s assets shrank slightly last week, to $527.2 billion.
Despite last week’s decline, municipal funds’ assets have grown 13.5% this year and 54.2% since the end of 2008.
