Flow Into Mutual Funds May Be Subsiding

The surge of money into stock mutual funds showed tentative signs of subsiding in May, according to monthly statistics released Tuesday.

The Investment Company Institute, the mutual fund industry’s main trade group, said long-term stock and income funds together attracted $21.3 billion in net cash flow in May, down from $23.6 billion in April.

Stock funds took in $9.4 billion in May, compared to $11.8 billion in April, while bond and income funds’ May net cash flow of $11.8 billion matched the total from the month before.

Net cash flow, as defined by the ICI, includes sales of new fund shares, minus the value of shares redeemed by investors, plus net money that comes into the funds through reinvestment of dividends and exchanges from one fund into another.

As their net sales dropped off, managers of stock funds put some of the buildup of cash reserves they had been accumulating in recent months to work in the stock market.

Their liquid assets as a percentage of total assets dropped to 9.2% from a revised 10.3% in April, indicating a reduction in one potential source of demand for stocks.

Many analysts watch all the data for stock funds for possible clues to the future course of the stock market.

“The net sales of equity funds correlate closely with stock market returns,” Prudential Securities Inc. analysts said in a recent report.

However, they added, “It is difficult to determine whether flows into mutual funds lead to stock price increases or whether a rising market draws money into the funds.”

At Kemper Financial Services Inc., sponsor of a family of mutual funds, sales of both stock and income funds “slowed somewhat” in June as well, said Steve Radis, a vice president at the company.

“With growing concerns over the direction of interest rates and with market indexes hovering near all-time highs, investors appear to be approaching the markets with extreme caution,” Radis said.