Stock Mutual Fund Demand Stays High After Record January

Investors have continued to pour cash into stock mutual funds in February, with many fund companies saying purchases are running near January’s blowout levels.

But topping January’s cash intake may be tough: Although January is historically a huge month for new investment in funds, data reported Tuesday show that last month topped even the most optimistic estimates.

The Investment Company Institute, the chief trade group for the funds, said stock funds took in a record $28.9 billion in net new cash in January, up 76% from $16.4 billion in December and 57% above the previous record of $18.4 billion set in January 1994.

The $28.9 billion also was a sharp upward revision from the ICI’s preliminary January estimate of $24.5 billion, reported Feb. 7.

To put the January total in perspective, it was more than double the amount Americans invested in stock funds in all of 1990.

Net new cash flow is fund purchases less reinvested dividends, redemptions and exchanges among funds in the same family. Thus, it is a measure of the net amount of new cash that investors placed in the hands of fund managers.

The January crush of cash has helped power Wall Street to record heights this year, as fund managers have quickly invested many of those dollars in stocks. Yet the managers couldn’t invest the money fast enough: Stock funds’ cash as a percentage of total assets was 8% at the end of January, up from 7.9% in December.

January tends to be the top month of the year for stock fund purchases because it’s the time when many companies match contributions that employees make to retirement investment plans.

Although most of the money flowing into stock funds in January went into domestic funds, foreign stock funds also saw a surge of buying: Net new cash flow into international and global stock funds jumped to $8 billion from $2.2 billion in December, the ICI said.

Many investment strategists had been recommending foreign funds in December, arguing that overseas markets were undervalued.

Meanwhile, investors poured a net $4.4 billion into bond funds in January, up from just $415 million in December and the best monthly inflow since January 1994. Money market funds also picked up more cash, as a net $23.9 billion flowed in last month.

With February drawing to a close, many fund companies say stock funds in particular continue to see heavy purchases.

“All signs are that investor appetite for mutual funds continues to be very strong,” said Gavin Quill, marketing vice president at Boston-based fund firm Scudder, Stevens & Clark.

Fund giants Fidelity Investments, Vanguard Group, T. Rowe Price Associates and Janus Capital all said stock fund purchases in February have been almost as strong as last month.

“January was our top-selling month ever and February was our second-best,” said Rowena Itchon, T. Rowe Price spokeswoman. Vanguard’s stock fund purchases will come close to matching January’s record of $2.3 billion, it said.