Investors Funnel More Cash Into Stock Funds
Investors continue to show faith in stock mutual funds despite the industry’s trading scandals, pouring cash into the funds at a pace not seen since 2000.
Equity funds hauled in a net $14.9 billion in November -- the ninth straight month of positive cash flows -- and the inflow might be even higher this month, according to data and estimates reported Tuesday. Fund flows measure investors’ new purchases of fund shares minus redemptions.
Boosted by the strong market rally that has reversed three years of losses for stocks, lifting the Dow Jones industrial average back above 10,000, equity funds took in a net $138.1 billion through the first 11 months, said the Investment Company Institute, the fund industry’s main trade group.
That means 2003 could see the best inflow for stock funds since 2000, when they lured a record $309.4 billion. Last year, investors redeemed a net $27.7 billion, ICI data show.
In December, stock fund inflows may “approach or exceed $20 billion,” said Bob Adler, president of fund tracker AMG Data Services in Arcata, Calif. That would make this the best December for equity fund flows since 1999, when $24.9 billion poured in.
Investors are focused on the rising stock market and the improving economy, Adler said. “The fund trading probes are taking a back seat, except in cases where the misdeeds are considered egregious.”
Two fund firms whose reputations have taken hits, Putnam Investments and Janus Capital Group Inc., suffered net redemptions in November, according to estimates by the consulting firm Financial Research Corp.
By contrast, two firms known for their conservative style have topped Financial Research’s sales charts in 2003: American Funds, run by Los Angeles-based Capital Research & Management Co., and Vanguard Group. Those firms had eight of the 10 bestselling funds last month, including the year’s most popular fund, American Funds’ Growth Fund of America, which took in $1.8 billion in November and $12 billion in the first 11 months.
Fidelity Investments, the biggest fund firm, said the flow of cash into its stock funds this month was about the same as in November; No. 2 Vanguard said December’s inflow was modestly below the previous month’s.
Industrywide, although the November inflow was down from October -- the year’s top month, when a net $25.3 billion piled in -- the recent data have been better than normal for the holiday season. “At this time of year, people are usually thinking about other stuff,” said Don Cassidy, senior analyst at fund tracker Lipper Inc. in Denver.
Surprising some analysts, stock fund inflows have picked up since early September, when the scandals over late trading and “market timing” erupted in the $7.1-trillion fund industry.
Meanwhile, investors have shifted away from bond funds since June as interest rates have risen from their historic lows, depressing bond prices and thus fund returns. Bond funds had net redemptions of $2.5 billion last month, their fifth straight month of outflows, the ICI said.
Bond funds attracted a record $140 billion of fresh cash last year and were taking in money early this year as well. But redemptions in recent months have cut the net inflow for the first 11 months to $34.4 billion.
Analysts warn that bond fund returns could worsen in 2004 if the Federal Reserve raises its target interest rate, as many economists expect.
Investors also fled low-yielding money market funds in November.
The net redemption of $7.7 billion brought the year’s outflow to $236.2 billion.
