Despite Rally, Bond Funds Don’t Show Magnetism of Stock Funds

The stock market’s hefty gains have continued to attract investors to stock mutual funds, but the rally in bonds isn’t doing the same for bond funds, industry officials say.

The funds’ chief trade group said Thursday that stock funds had net new cash flow of $10.6 billion in April, up from $7.2 billion in March. That measures purchases adjusted for redemptions and other factors.

Bond funds, meanwhile, saw a net $1.4 billion flow out in April, though that was less than the $3.7 billion of March, the Investment Company Institute said.

So far in May, many fund companies say stock fund inflows remain fairly strong, though they are generally down from April’s levels, which were swelled by individual retirement account contributions made by the April 15 tax deadline.

Vanguard Group, for example, says stock fund inflows are $580 million this month, down from $675 million in April. The Putnam Funds also say stock fund purchases have dipped from April but are above March’s levels.

But many fund companies say their bond funds are attracting little if any net new investment. Fidelity Investments, for example, says its net new cash flow into bond funds is a mere $100 million this month--even though interest rates have plunged, boosting bond fund share prices.

One potentially disturbing note from the ICI’s April data: The average stock fund had just 7.5% of assets in cash at the end of April, down from 7.6% in March and the lowest in many years. Analysts worry that declining cash balances at stock funds mean there’s less fodder to feed the bull market.