Flows out of US stock funds resumed in February (via Morningstar):

January’s inflows into U.S. stock funds proved to be a brief respite, as flows turned negative once again in February. Last month, investors withdrew $3.7 billion from U.S. equity funds, for the fifth outflow in the last six months. During the last 12 months, $21.3 billion has exited the asset class.

Money continues to flow into bonds despite low rates:

Every other major asset class took in assets in February, with taxable bond funds once again leading the way. Taxable bond funds have dominated inflows since January 2009. Although flows into this asset class peaked in the fall of 2009, the trend remains strong and is showing no signs of abating.

 

 

Muni-bond funds have also experienced steady and strong inflows during the past several months. Inflows during the first two months of the year already surpass $10 billion, for the strongest start the asset class has ever experienced. Investors continue to prefer the short end of the curve, with the muni-national short category accounting for around half of all muni-fund inflows. Money market funds, meanwhile, saw outflows of $71.1 billion in February, and $663.5 billion during the past 12 months. It’s certainly possible that some of the money exiting low-yielding money markets has gone into short-term muni funds, as investors move farther out on the yield curve in search of more income.

I suspect that the massive investment in bonds by mutual fund investors over the last two years will end very badly. At least some of it is going into short term bonds; they won’t be hurt as badly when rates rise.

Money continues to flow into international funds:

International-stock funds registered $4.6 billion in inflows in February. Foreign large-blend is the most popular international category so far in 2010, with inflows of $6.3 billion. However, during the past 12 months, the diversified emerging-markets category has taken in about the same amount of cash as the foreign large-blend category. Each category has experienced inflows during the last year of more than $19 billion.

Interestingly the S&P 500 is outperforming the EAFE since October:

The S&P is even outpeforming emerging market stocks slightly over the same period:

That’s pretty amazing when you think about it. All this money flowing out of US stock funds and into international and emerging market funds and yet the US outperforms anyway. So what do mutual fund flows actually tell us other than that US individual investors are lousy market timers? Not much apparently….