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Billions Still Pouring Into Stock Mutual Funds : Investing: The nation’s overall fund total nears $2 trillion as analysts wonder how long the flow can last.

From Associated Press

Undeterred by widespread forecasts of a market “correction,” investors in stock mutual funds keep setting purchase records.

They poured $13.5 billion into stock funds in October, surpassing the previous high of $12.3 billion set in August, according to figures made public Monday by the Investment Company Institute, a Washington trade group.

Net cash flow into stock funds had trailed off to $10.2 billion in September.

For all types of long-term funds, including bond and income funds, the ICI said net cash flow totaled $25.8 billion in October, up from $19.6 billion in September but shy of August’s record of $26.9 billion.

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

The ICI said total assets of all funds, including short-term money market funds, came to $1.976 trillion at the end of October, compared to $1.919 trillion a month earlier.

The size of the nest egg entrusted to the nation’s fund managers is closing in on $2 trillion just a little more than three years after it reached the $1 trillion mark.

The new influx of money into stock funds came just as the bull market in stocks passed its third anniversary, marking one of the longest spans in Wall Street annals without so much as a 10% pullback in stock prices.

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Based on that and other questions, many analysts on the Street lately have been warning that the market is vulnerable to a setback.

“Downdraft Coming,” declares the headline of a commentary by Byron Wien, U.S. investment strategist at Morgan Stanley & Co.

“Market Correction at Hand,” says the current issue of Standard & Poor’s weekly advisory publication The Outlook.

“While I continue to believe we are in a long-term bull market, I think the odds of a 5% to 10% correction in the near term have increased,” Wien said. “It is no longer a time to be fully invested.”

Wien said the fuel for the market has come from individual investors who have been buying shares of stock funds at a pace roughly two to three times that of earlier cycles.

“Historically, public enthusiasm for equity mutual funds has been a warning signal, as it was in 1983 and 1987,” he said.

“At some point, individuals begin to run out of cash and slow down their buying of mutual fund shares. In my view, we are at or getting near that point.”

Other ICI data suggests that the stock funds were reluctant to pour money into the market as fast as they received it. The funds’ liquid asset ratio, or percentage of assets held in short-term money market investments, increased to 8.8% in October from 8.6% the month before.

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