Investors Flock to Bond Mutual Funds

Bond mutual funds, which for most of the late 1990s had trouble holding on to investors, let alone attracting new ones, suddenly are back in vogue in a big way.

Bond funds, including those that own government, corporate and municipal bonds, attracted $16.5 billion in net new cash in August, the Investment Company Institute said Thursday.

By contrast, stock funds saw a net cash outflow of $5.25 billion, according to ICI, the fund industry’s chief trade group.

The bond fund inflow and stock fund outflow figures were on track with estimates previously given by private data firms.

Investors were souring on stock funds in August as share prices fell sharply, extending the bear market that began in March 2000. Many analysts believe stock funds saw net outflows again in September in the wake of the terrorist attacks.

The average stock mutual fund has lost about 25% of its value so far this year.

Most bond funds, by contrast, have posted positive total returns in the 4%-to-10% range this year, as falling market interest rates have boosted the value of older bonds.

Through August, bond funds took in $61 billion in net new cash year to date. Stock funds’ net inflow through August was $42.8 billion.

Total assets of bond funds stood at $909 billion in August; stock funds held $3.4 trillion.