U.S. Investors Flock to Stock Funds

U.S. investors are estimated to have increased their stock mutual fund purchases in June, a month when the Standard & Poor’s 500 index hit an all-time high, and to have put more money in bond funds.

An estimated $21.1 billion went into stock funds in June, up from $18.7 billion in May, according to Trim Tabs Financial Services Inc., which made the projection for the month that ends today.

“The pace of stock-fund buying really took off after a rocky beginning to the month, set off by the market’s rise,” said Carl Wittnebert, Trim Tabs’ director of research. The benchmark S&P; 500 gained 4.4% this month and closed Monday at a record 1,138.49 points.

Many of the biggest fund companies, including Fidelity Investments, Charles Schwab Corp., T. Rowe Price Associates Inc. and Scudder Kemper Investments Inc., reported higher net purchases of stock funds in June. Companies, such as Vanguard Group and Schwab, also reported higher bond-fund buying.

Bond funds are gaining popularity relative to past years. About $9.81 billion was invested in taxable bond, municipal bond and so-called hybrid funds in May, up from $5.24 billion in April, according to the Investment Company Institute, the industry’s trade group.

“The roller-coaster market is sparking renewed interest in bond funds,” said Tony D’Amato, director of retail marketing at Milwaukee-based Strong Capital Management Inc. “It started in May, and it continued in June.”

About $26.3 billion was invested in money market funds in May, reversing an outflow of $12.7 billion in April, according to the ICI.

The flows to stock funds in May received a boost from the movement of a chunk of money from banks’ common trust funds, the ICI reported. About $5.3 billion, or 28%, of the money invested in stock funds last month was converted from common trust funds.

Many stock fund managers are holding less cash than they normally do. At the end of May, the average stock fund had 4.4% of assets in cash, compared with 4.2% at the end of April, which was the lowest level since December 1972, ICI said.

Cash levels have been declining since January 1996 when stock funds had 8.1% of assets in cash. The average cash position was 5.5% as recently as Jan. 31.

The low cash level comes at a time when some industry executives are getting increasingly concerned that the rally in U.S. stocks may soon end.