Mutual Fund Inflows Down as Much as 50%

The pace of equity mutual fund buying slowed this month as concerns about the health of the U.S. stock market mounted, several top fund companies said Thursday.

Many of America’s biggest fund companies said inflows have been down as much as 50% this month from February, when about $18.45 billion poured into stock funds.

Fidelity Investments, the leading U.S. fund group, also reported weak estimates for the month. The Boston-based company said it expects net inflows to its equity funds to be flat this month, compared with last month, which saw net inflows of about $2 billion. The company’s flagship Magellan fund has continued to suffer a net outflow.

The industry trade group Investment Company Institute said Thursday that $18.45 billion flowed into U.S. stock funds in February, down from its preliminary estimate of $19.5 billion for the month, issued March 13. A record $29.08 billion flowed into stock funds in January.

ICI economist Mitchell Post said the decline in inflows from January’s record level partly reflect a seasonal pattern.

“January typically receives the largest seasonal inflows, which reflect, among other things, retirement account activity and the investment of year-end bonuses,” Post said in a statement.

Thursday’s triple-digit drop in the Dow Jones industrial average prompted investors to move a bigger portion of their assets to low-risk money market funds, fund companies said. The blue-chip-stock average has fallen nearly 5% since closing at a record high of 7,085.16 on March 11.

“Cash flow in the equity area is about half what it was in February, and low-risk money market funds are attracting about twice what they did in the prior month,” said Steve Norwitz, vice president of T. Rowe Price.

As for bond funds, firms said inflows were lower than February. ICI reported that about $2.17 billion was invested in February, compared with $3.4 billion in January.

The market’s decline is linked to concerns about the outlook for corporate profits, particularly in the technology industry, and rising interest rates. The Federal Reserve Board moved this week to raise the overnight bank lending rate by a quarter point, the first Fed rate increase in more than two years.

“Investors have been concerned about what the Fed might do for more than a month, and now that the central bank has made its move, fund inflows should start to pick up,” said Ralph Greggs of New England Funds.

To be sure, the first two months of this year were big months for cash inflows to equity funds. A record $29.08 billion poured into stock funds during January, the ICI said.

The average stock fund had about 5.7% of its assets in cash-related accounts at the end of February, unchanged from the previous month, the ICI reported.