Stock Mutual Fund Inflows Tumble
Individual investments in U.S. equity mutual funds tumbled in the first part of July as the stock market endured one of its worst slumps since 1990 and investors shifted money to low-risk money market funds.
AMG Data Services said that more than $4 billion was yanked from stock funds in the week ended July 17 alone. It was the biggest one-week withdrawal since at least January 1992.
Fidelity Investments, the nation’s No. 1 fund group, said about $500 million was withdrawn from its domestic stock funds so far this month and that $2 billion was added to money market funds.
“We’ve seen a steady slowdown in equity fund sales in July, and it’s been exacerbated by the recent market volatility,” said Robyn Tice, Fidelity’s spokeswoman.
The redemptions are occurring as the stock market plunges. The benchmark Standard & Poor’s 500-stock index is down about 7% since mid-May amid mounting concerns about slowing corporate profit growth. The Nasdaq composite index is down 15% since June 5.
“The market is scaring investors,” said Charles Biderman, president of Trim Tabs Financial Services, an investment advisory firm in Santa Rosa, Calif.
The pace of stock fund inflows first showed signs of slowing in June. About $14.48 billion was added to equity funds last month, down 42% from $25.11 billion in May, the Investment Company Institute said Thursday.
Some of the drop was expected. “There’s always a distinct slowing of net flows starting in late May and running through August,” said Gavin Quill, marketing vice president at Scudder, Stevens & Clark Inc. in Boston. But overall net inflows over the last decade have fallen about 13% in the summer months, the ICI reported--much less than recorded so far this season.
One unusual change in the stock fund data was in net exchanges--or switching from one stock fund to another fund within one firm. The ICI reported $520.7 million in June exchanges compared with $3.84 billion in May.
Money poured into international stock funds in the first half of 1996 at the fastest rate in history, the ICI said. A net $20.05 billion was invested in these funds, almost triple the investments of all of last year and the highest inflow in a six-month period since the organization began tracking mutual fund flow in the early 1970s.
Such fund groups as T. Rowe Price and Scudder, Stevens & Clark reported an increase of inflows into money funds this month.
Net inflows into money funds were the highest since November 1994, said Scudder’s Quill.
“Many investors are opting to put new fund investments in money funds rather than risk losing money by adding to U.S. stock fund holdings,” Quill said.
T. Rowe Price reported that net purchases of money funds exceeded new stock fund purchases in July for the first time in 1 1/2 years.
Michael Lipper, president of Lipper Analytical Services, theorized that the drain from stock funds was due in part to large institutions that executed arbitrage plays, using the funds and short-term U.S. Treasury and commercial securities.
Bond funds posted an outflow of $206.7 million in June compared with an inflow of $302.9 million in May.
