Stock Fund Inflows Off in March as Jitters Rise

In a potentially worrisome sign for the bull market, investors have slowed their purchases of stock mutual funds in March, several major fund companies said Thursday.

Vanguard Group, T. Rowe Price Associates, Fidelity Investments and Janus Capital all said cash inflows to stock funds this month have been well below February’s levels, which totaled $18.5 billion industrywide, the Investment Company Institute reported Thursday.

The February total was sharply below January’s record $29.1 billion and below the February 1996 net inflow of $21.9 billion.

Analysts said investors’ fading interest in pumping more money into stock funds reflects growing worries that the market has become at least temporarily overpriced. That sentiment has been bolstered by Federal Reserve Board Chairman Alan Greenspan’s recent warnings about the dangers of an overheated market.

Now, with stock prices already weakening, declining fund inflows could assure a deeper decline by curtailing fund managers’ stock purchases. That is what happened last July, when net stock fund inflows plunged to $6.2 billion.

“[March] 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, spokesman for T. Rowe Price in Baltimore.

Fidelity Investments, the leading U.S. fund group, said it expects net inflows to its equity funds to be flat this month, contrasted with a net inflow of about $2 billion in February.

Many fund companies say investors continue to buy shares of the more conservatively managed stock funds such as “growth and income” funds. Boston-based MFS Investment Management, for instance, reported that its Massachusetts Investors Trust, a growth-and-income fund, is among its most popular so far this year.

Gross purchases of growth-and-income funds fell 16% in February from January, the ICI said. In contrast, gross purchases of aggressive-growth funds--many of which have suffered sharp declines in recent months as the stocks they own have fallen--dropped 26% in February from January.

ICI economist Mitchell Post said the overall decline in February stock fund 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.

It appears that stock fund managers quickly invested their new cash in February, rather than holding back: The average stock fund had only 5.7% of its assets in “cash” as of Feb. 28, the same percentage as of Jan. 31.

As for bond funds, many fund firms said March inflows have been lower than in February. The ICI reported that bond funds took in a net $2.17 billion in February, compared with $3.4 billion in January.