Bond fund inflows continued at a heavy pace in July while stock funds yet again posted net outflows.

Mutual fund investors stashed another $30 billion taxable and tax-free bond funds after moving more than $20 billion to fixed-income funds in June, according to the Investment Company Institute, a trade group for mutual fund companies. August figures will not be reported until the end of this month.

Equity funds suffered net outflows of more than $10 billion in July on the heels of nearly $6 billion in withdrawals in June, according to ICI.

“We typically see greater inflows into domestic equity funds at this point in the market cycle, and would expect those inflows to be coming now, particularly given the current savings rate among U.S. households,” wrote ICI Chief Economist Brian Reid. “The data suggest a broader asset allocation story may be unfolding.”

Reid noted many baby boomers are nearing retirement age and adopting a more conservative asset allocation.

Foreign stock funds, however, continued to attract investor dollars, posting a net inflow of $690 million for the month versus nearly $1.9 billion in June.

”The relatively strong inflows to international equity funds have been evident since the mid 2000s, and indicate an ongoing shift from domestic equity funds to international funds,” Reid wrote. “In addition to the outperformance of foreign stocks relative to U.S. stocks, a portion of the greater demand may reflect investors’ desire to increase the diversification of their assets across international equity markets.”

Investors took more than $6 billion out of money market funds following an outflow of nearly $21 billion in June. Ultra-low money market yields have investors taking on more risk while reaching for higher yields. Corporate and high-yield bonds have posted exceptional returns in the last year, and some investors may be chasing performance.

“[L]ow short-term interest rates and the relatively steep yield curve likely are enticing some investors … to shift out of money market funds — whose yields are hovering just above zero. Some retail investors may be moving assets into bond mutual funds,” Reid wrote. The yield curve refers to the difference in longer-term and short-term fixed-income yields.

In addition to the factors cited by ICI, the bond fund inflows and equity outflows suggest that mutual fund investors are frustrated by dismal economic data, the apparent failure of the stimulus, two bear markets within 10 years (amid excesses on Wall Street) and events such as May’s “flash crash.” These have sapped investor confidence in the fairness of the stock market and its ability to rebound in its usual fashion in the near term.

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