Stock Fund Cash Inflows Rebound in Nov.

Investors returned to buying stock mutual funds this month--just in time for the blue chips’ run to new highs, data show. But another report indicates that October fund purchases were even lower than originally estimated.

Santa Rosa, Calif.-based fund research firm Trimtabs.com estimated that a net $12.9 billion will be invested in stock funds in November. If accurate, that would be more new cash than the funds have received in any month since July--just before the market’s late-summer dive.

Fund companies Charles Schwab, T. Rowe Price and Vanguard Group all confirm the trend. They say investors are plowing as much money into stock funds as they did in spring and early summer.

Fidelity Investments, the nation’s largest fund firm, said a net $3 billion has already been invested in its equity funds in November. “It’s shaping up to be the strongest month for us in net [purchases] thus far this year,” said spokesman Scott Beyerl.

But where were individual investors last month, when stocks were a lot cheaper--and just beginning to resurge?

New data indicate that fund investors were even slower to buy into the sharp rebound in stocks than was previously estimated.

The net cash inflow to all stock funds was just $2.35 billion in October, the Investment Company Institute, the fund industry’s chief trade group, said Tuesday.

That was two-thirds less than the amount invested in September, even though the Dow Jones industrial average gained twice as much in October as it did in September.

The October inflow also pales compared with the net $19.8 billion investors put into stock funds in October 1997--when the Asian currency crisis came to a head.

“I find this very surprising,” said Carl Wittnebert, research director at Trimtabs.com. “Of course, the market was quite volatile in early October. But given the strength of the rally late in the month, you would think that a lot more money would have flowed in.”

Trimtabs.com had estimated that a net $9.1 billion was invested in stock funds in October.

The delayed response on the part of investors may have hamstrung some funds that wanted to buy stocks when they were near their lows. Equity funds purchased a net $5.2 billion worth of stock in October, according to ICI. That was down significantly from $13.7 billion in October 1997.

The slow response also is another reminder that fund investors historically have been more likely to follow stock rallies than lead them.

Fund investors also appear to be favoring the same market leaders they have throughout the 1990s bull market, buying funds that own U.S. blue chips at the expense of out-of-favor foreign and small-cap stock funds.

Indeed, the ICI reports that investors pulled a net $700 million out of world equity funds in October. And Trimtabs.com believes $100 million more will be yanked by the end of the month. If true, that would mark the fourth consecutive month of net outflows from world funds.

And while investors had been putting money into small-cap funds in the three weeks through Nov. 5--when small stocks were rising sharply--that inflow appears to have ended along with the rally. In the two weeks ended Thursday, the 14 small-cap funds that Trimtabs.com tracks saw a slight outflow of investment.

Meanwhile, investors’ appetite for bond funds also waned a bit in October: Taxable bonds took in $4.05 billion in fresh cash, down from $4.6 billion in September.