Follow the Fund Flows Into Precious Metals

This week, investment research firm Morningstar issued its most recent Fund Flows Update report.� The results are interesting in that overall mutual fund and exchange-traded fund asset inflows (the money put into funds buy investors) in September were a lot less than the outflows (money taken out of funds by investors).� According to the report, long-term mutual funds saw inflows of $14.3 billion during the month, while U.S. equity outflows continued reached $16.3 billion.� This, as the report notes, was despite the best-performing September for stocks in 71 years.

Digging through the data in the Morningstar report, we find a growing divergence between the money flow in international-stock funds and domestic-equity funds. International-stock funds saw what can be described as modest inflows of $600 million in the third quarter; however, U.S. stock funds saw outflows of approximately $42.7 billion in the same period.

The report goes on to say that investors have pulled $80.9 billion from U.S. stock funds over the trailing 12 months, while adding nearly $34.3 billion to international-stock funds.� That�s a difference of $115.2 billion. On the ETF front, we had inflows of roughly $25.4 billion in September.� Year-to-date ETF inflows are now $64.9 billion.

One segment of the market that everyone knows is hot right now is commodities, and particularly precious metals.� Gold seems to hit record highs on a daily basis, and it seems as though practically the entire investing public has come down with an acute case of gold fever.�

According to Morningstar, commodity funds in general have taken in nearly $7.5 billion so far in 2010. The data also shows a shift taking place away from broad-basket commodity funds and into equity precious-metals funds. Inflows into equity precious-metals funds came in at $692 million in September, handily besting inflows of $654 million for broad-basket commodity funds.� As the rocket ship that is precious metals prices continues to soar, look for more fund inflows into this fund category.

Now, if you�re looking to play the precious metals boom with mutual funds, you have many different options.� Many of the big fund families — Franklin, Oppenheimer, Van Eck, etc. — have precious metals funds to choose from.� Some of the best performing funds year-to-date are the Van Eck International Investors Gold A (INIVX), which boasts a 2010 total return of 3.61% (through 10/11/10); the Oppenheimer Gold & Special Minerals-A (OPGSX), with a 37.24% year-to-date return; the Franklin Gold & Precious Metals Adv (FGADX); and the Tocqueville Gold Fund (TGLDX), with a sector-leading year-to-date performance of 40.91%.

Each of these precious-metals funds represents some of the biggest winners in the space so far this year.� In fact, these funds are among the best recent performers in what Morningstar says has been the best-performing mutual fund category of the last decade.� If you want to follow the trends, you need to follow the fund flows — and that means following the flow into precious metals.