Since Whitney's comments, "the mutual funds and the bond ETFs have taken it on the chin," said Robert Kane, speaking about investor redemptions. "When there's an issue in the marketplace which causes retail investors concern, they kind of run for cover," said Kane, who's chief executive officer of BondView.com, which provides bond portfolio analysis for individual investors.
Investors sold all categories of municipal-bond funds, which range from single-state bond funds to funds that mainly invest in short- or long-term securities, in the five months through March, according to Morningstar Inc., a Chicago-based research firm.
"Investors have been pretty indiscriminate about what they've been selling," said Miriam Sjoblom, a bond-fund analyst for Morningstar.
Outflows have been greatest among high-yield municipal funds, where investors withdrew 11% of their assets, and among funds that invest in long-term bonds, where investors took out 8.1%. Outflows have been lowest among funds that invest in short-term investment-grade municipal bonds, where investors have withdrawn 5.3%.
Aggressive Buying
"Those who are sellers in some part are reacting to newspaper headlines and thinking, 'Well, I'd better take some money off the table because the risks are elevated,'" said Josh Gonze, who helps oversee about $6.5 billion in municipal-bond assets as co-portfolio manager of six mutual funds for Santa Fe, N.M.-based Thornburg Investment Management Inc.
Buyers of individual bonds through discount brokers have been "aggressively" accumulating issues in the last few months, said Chris Shayne, senior market strategist for Mill Valley, Calif.-based BondDesk Group, a bond marketplace that works with dealers, financial advisers and discount brokers including New York-based E*Trade Financial Corp. Individual investors cannot purchase bonds directly with BondDesk.
The ratio of buy orders to sell orders, a measure of investor demand, from do-it-yourself investors jumped to about 6 in February from 3.6 in November, according to data from BondDesk, which has about 30% of municipal-bond market transactions.
Waiting for Yield
Investors with TD Ameritrade Holding Corp. brokerage accounts purchased 22% more individual municipal bonds in the first quarter of 2011 than they did the year before, according to Perry Guarracino, director of fixed income for the Omaha, Neb.-based company.