Stock Fund Interest Still Waning
Major mutual fund companies said Thursday that Americans continue to be fairly wary of stock funds this month, as the bull market has stumbled.
Meanwhile, the Investment Company Institute, the funds’ chief trade group, confirmed that June inflows into stock funds were the lowest since November. The ICI also said stock funds’ cash reserves fell in June to a new 19-year low.
The ICI data for June showed that stock funds’ net new cash flow was $14.5 billion, down 42% from $25.1 billion in May and the lowest since the funds took in $14.3 billion in November.
The ICI’s original estimate of the June slowdown, reported on July 10, helped contribute to Wall Street’s gloomy mood earlier in the month. Stock prices have since suffered their deepest pullback since 1994.
Small investors had pumped record sums into stock funds in the first five months of the year, driving the market to record heights. Now the fear is that more investors will shy away from the funds because of stocks’ recent slide, removing a key prop from the bull market and allowing share prices to decline even more.
Fund-tracker AMG Data Services reported July 19 that investors pulled more than $4 billion from stock funds in the week ended July 17, the biggest outflow since at least January 1992.
On Thursday, Fidelity Investments, the nation’s No. 1 fund group, said its U.S. stock funds have suffered total net outflows of about $500 million so far this month. At the same time, Fidelity customers have added $2 billion to their money market fund accounts.
“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.
Among other fund firms, T. Rowe Price said net purchases of money funds have exceeded new stock fund purchases this month, for the first time in 1 1/2 years.
Scudder, Stevens & Clark said inflows into its money funds are the highest since November 1994.
But Scudder spokesman Gavin Quill also noted that stock fund purchases often decline in summer months from spring levels.
Yet not all fund companies are reporting a slowdown in stock fund purchases. John Hancock Funds in Boston said purchases of its most aggressive funds remain robust, though down from the highs of earlier this year. State Street Research said stock fund purchases are 23% higher in July than June. New England Funds also said net inflows into stock funds are up from June.
In the report on June fund activity, the ICI said bond funds saw their first net outflow of cash since June 1995. A total of $207 million left bond funds, compared with an inflow of $303 million in May. Market interest rates continued to surge in early June, eroding bond fund share values and apparently spurring more investors to exit the funds.
Meanwhile, the ICI data showed that the average stock fund had just 6.6% of its assets in cash (short-term securities) at the end of June, down from 6.7% in May and the lowest since June 1977.
Low fund cash positions may have contributed to the stock market’s recent woes, because fund managers may have felt compelled to sell stocks to raise more cash as a precaution against fund redemptions, experts say.
