Stock Fund Buying Stays Strong; Muni Funds Take a Hit
A flurry of selling by municipal bond mutual fund shareholders slashed the fund industry’s net cash intake in June to about half of May’s levels, but the picture improved this month, many fund companies say.
For stock funds, meanwhile, steady-as-they-go continued to define investors’ activity: Net purchases of stock funds have remained at the same general level for the last five months.
Overall, net new cash flow into stock and bond funds totaled $4.9 billion in June, down from $9 billion in May, according to data reported Wednesday by the Investment Company Institute, the funds’ chief trade group.
Cash flow measures investor purchases adjusted for redemptions, reinvested dividends and intra-company exchanges.
June’s lower cash flow reflected another outflow from bond funds, as a net $3.3 billion exited the funds, following a gain of $665 million in May. Stock funds, in contrast, saw positive net new cash flow of $8.2 billion in June, nearly equal to May’s $8.4 billion.
ICI data confirms what industry analysts knew anecdotally in June: More investors bailed out of muni funds, apparently worried that federal tax reform proposals could eventually eliminate muni bonds’ tax-free status.
Exchanges out of muni funds soared to $4.13 billion in June from $2.33 billion in May.
So far in July, however, many fund firms say muni fund selling has ebbed. Massachusetts Financial Services says its muni funds are seeing small inflows again. Vanguard Group says its muni funds have taken in $40 million this month, compared to a $5-million net outflow in June.
Meanwhile, fund companies including Vanguard, Fidelity Investments and Putnam Investments say stock fund purchases this month are either matching June levels or are slightly higher. Even as the market sold off last week, fund firms say investor purchases held steady.
But fund managers are spending cash--on stocks--faster than they’re taking it in: The average stock fund had 7.2% of assets in cash on June 30, down from 7.5% in May and the lowest since January, 1992. That means potential fuel for the surging bull market may be running down.
