Investors Shy Away From Equity Funds
Investors’ net purchases of stock funds in August fell sharply from last month’s near record pace, while money moving to low-risk money market funds continues to rise amid increasing concerns about falling equity markets.
The research group Trim Tabs Financial Services Inc., which tracks industry money flows, on Thursday estimated that equity funds attracted just $9 billion in August, about a third of the $26.56 billion invested in July, the third-largest monthly inflow ever.
If Trim Tabs is accurate, it would be the lowest monthly inflow since July last year. The Investment Company Institute, which also tracks fund money flows, will publish its official estimate for August early next month. August tends to be one of the slowest months of the year for the business.
None of the fund groups surveyed on Thursday by Bloomberg reported net equity fund outflows during a month when the Dow Jones industrial average fell about 6.5% since closing at a record 8,259.31 on Aug. 6. The companies did report that net purchases of equity funds were down anywhere from 15% to 65% from July.
Companies also reported that more investors were socking cash away in money funds this month, which is perceived as a safe harbor amid volatile markets.
Fidelity Investments, the biggest U.S. fund company, reported that five of its top 10 selling funds are money market funds this month. No. 2 Vanguard Group said its money funds attracted about $470 million in August, up from $395 million last month.
“It’s an indication some investors are concerned about market volatility,” said John Woerth, Vanguard’s spokesman.
While some investors are moving more cash to money funds, the average equity fund is holding less cash than at any time since December, according to the Investment Company Institute.
The average stock fund had just 5.6% of its assets in cash at the end of July. That may be a bearish sign because it means most fund managers don’t have much leftover cash to invest in the market at the same time net inflows are slowing.
The institute reported that bond funds attracted more money in July than during any month since January 1996. A net $4.21 billion went into fixed-income funds last month.
Vanguard said equity fund purchases are down this month, though the rate of inflow is higher than that of August last year, when about $1.5 billion was invested. About $2.2 billion was invested in stock funds this month, compared with $3 billion in July, Woerth said. Vanguard’s most popular funds remain those that mimic the Standard & Poor’s 500 Index, he said.
Fidelity reported that flows to the firm’s equity funds declined to about $1 billion in August from $2 billion in July. The company’s flagship Magellan Fund attracted net inflows during the month, the first time that has happened since early last year.
Fidelity this week said it plans to shut Magellan to new investors at the end of September in an effort to control the fund’s cash flows.
Overall, mutual fund investors are acting calmly in today’s volatile market, said Ralph Greggs, vice president of product development at Boston-based New England Funds.
At Charles Schwab Corp., net inflows to equity funds declined to $840 million from $1.65 billion in July. The slowdown was especially apparent for funds investing in non-U.S. stocks, said Tracey Gordon, a Schwab spokeswoman.
About $60 million was invested in international equity funds so far this month, just one-eighth of what went into these funds in July, Gordon said. The reduction in international stock fund purchases comes at a time when some Southeast Asian markets are down sharply.
