September Stock Fund Inflows Match August, Companies Say

Investors’ revived appetite for stock mutual funds in August has carried into September, many fund companies report, with cash inflows this month at least as high as August’s levels.

Fund marketers such as Vanguard Group, Charles Schwab Corp., T. Rowe Price Associates and State Street Research & Management said Thursday that stock fund net inflows this month have remained on course with or even topped August’s levels.

Fidelity Investments said more than $1 billion was invested in its stock funds this month, a mirror image of August.

Vanguard, the No. 2 U.S. fund group, said stock fund inflows will total about $1.5 billion this month, roughly the same as August’s level.

The Investment Company Institute, the funds’ chief trade group, reported Thursday that a net $17.9 billion was invested in stock funds in August, up from $5.8 billion in July although below the ICI’s recent estimate of $19 billion for August.

Net cash inflows into stock funds--meaning gross purchases less redemptions and exchanges among funds in the same family--had plunged in July in tandem with the stock market’s sharp pullback. Fund companies said the main problem was a surge in redemptions as some fund investors took profits.

But redemptions of fund shares dropped dramatically in August as the stock market calmed. Total redemptions of stock and bond funds had totaled $38.8 billion in July but fell to $29.5 billion in August, the ICI said.

That pushed net cash inflows up sharply again, which in turn allowed stock fund managers to resume buying stocks aggressively--lifting the market across the board. The Standard & Poor’s 500-stock index has risen 7.1% since the end of July.

Charles Schwab said stock fund purchases made through the discount brokerage totaled about $1.33 billion as of Wednesday, which roughly matches what was invested during all of August. Scudder, Stevens & Clark and State Street Research said stock fund inflows are higher this month than in August. But Oppenheimer Funds said net stock fund purchases are down about 12% this month from August.

Overall, despite the rebound in cash inflows in August and September, the totals industrywide remain well below the peak levels earlier this year. Stock funds took in $28.9 billion in January alone.

On the bond side, investors are still wary. Vanguard, Schwab and State Street Research all reported bond fund net inflows are down this month from August.

ICI said bond funds’ net cash inflow was virtually nil in August, mainly because of a heavy outflow from tax-exempt municipal funds.

The tax-exempt funds had a net outflow of $1.2 billion last month, the most in a year, the ICI said.

Meanwhile, in a potentially positive sign for the stock market, stock fund managers haven’t put all of their fresh cash to work, but rather have allowed cash balances to grow, ICI data show.

The group said the average stock fund had 7.2% of its assets in cash at the end of August, up from 7% at the end of July and 6.7% in May, the ICI said.

That suggests many managers are still wary of another stock market pullback, and are keeping more cash in reserve to meet potential redemptions.

But the growth in cash reserves also means there is more fodder in the funds to drive stock prices higher, should managers decide to get more aggressive and invest more heavily.

The ICI said the nation’s 5,143 stock and bond funds now hold $2.36 trillion in assets.