Money Markets Send Mutual Fund Cash Flow Soaring in May

Net new cash flow into all mutual funds soared to $29.94 billion in May, up from $9.61 billion in April, as investors poured cash into money market funds, the Investment Company Institute said Wednesday.

Money market funds had a $4.46-billion inflow in May, compared with a $16.99-billion outflow in April, the trade group said.

Monthly flows of money market funds typically fluctuate, as they are highly liquid short-term parking zones of safety for cash management, said John Collins, a spokesman for the ICI.

By contrast, net new cash flow into both stock and bond mutual funds slipped in May from the previous month.

Stock mutual funds had $25.16 billion net new cash flow in May, down from $26.09 billion in April. Bond and income funds had $324.2 million net new cash flow in May, far below $508.8 million of April.

The combined assets of all mutual funds increased to $3.166 trillion in May from $3.105 trillion in April.

Bond and income funds posted modest inflows as balances of taxable bond funds continued to grow while tax-exempt bond funds shrank, the ICI said. Overall, bond and income funds’ cash flows are improving. They’ve been positive since July 1995--”a turnabout from the outflows experienced in 1994 and early 1995,” the ICI said.

Junk bond funds had $1.30 billion net new cash flow in May, the highest since February 1995, when it was $1.37 billion, Collins said. In April, the net new cash flow into junk bond funds was $1.15 billion.

John Rea, ICI chief economist, said the rise in assets of stock funds in May resulted from strong cash flow and rising stock prices. Stock fund assets rose to $1.526 trillion in May from $1.474 trillion in April.

Net new cash represents new sales with exchanges minus redemptions. It doesn’t include dividend payments or market gains.