Stock Fund Inflows Take a Dive

The level of fresh investments in U.S. stock mutual funds last month was about two-thirds of the amount that flowed into these funds in January 1997, while bond fund inflows were the highest since August 1993, an industry group said Thursday.

The Investment Company Institute said a net $18.5 billion was invested in stock funds last month, down from last January’s record $28.9 billion. Last month marked the worst kickoff to a new year in terms of net new investments in equity funds since 1995, the ICI reported.

The industry trade group also reported that an estimated net $11.5 billion flowed into bond funds in January, compared with net inflows of just $3.59 billion in the year-earlier period and up $5.6 billion from December.

“The fall of long-term U.S. interest rates to historically low levels is driving a resurgence of interest in bond mutual funds to levels not seen in more than four years,” said Gavin Quill, director of business analysis at Scudder Kemper Investments Inc. in Boston.

Bond fund inflows have slowed somewhat this month, Quill said, while investments in international stocks funds at Scudder are the highest in almost four years as Asian markets stabilize.

Scudder and T. Rowe Price Associates Inc. are reporting higher net inflows to stock funds this month than in January, which is helping spur the U.S. equities market to record heights.

“This month, our equity fund inflows are running at higher rates than January while bond fund inflows are at more subdued rates,” said Steven Norwitz, a spokesman at Baltimore-based T. Rowe Price.

The first six weeks of the year tend to be the period when funds attract the most new investments as the highest number of 401(k) retirement plans are established and U.S. fund holders reallocate their savings plans for the new year.

Investors have been pouring money into stock funds for more than two years. A record net $231.29 billion was invested in equity funds last year, exceeding the previous high of $221.6 billion in 1996.

The big numbers are a bit deceiving, said John Rekenthaler, manager of investment strategies at Chicago-based Nuveen & Co.

For every dollar that’s coming into stock funds from individual investors, there’s more than a dollar leaving the equities market as individuals sell directly held stock, Rekenthaler said.

“The net effect doesn’t support the notion that mutual fund buying is pushing up this market,” he said.