In a sign that the scandal rocking the mutual fund industry doesn't appear to be discouraging investors, a net $23.8 billion was added to U.S. stock mutual funds in October as the stock market posted solid gains, fund research firm Lipper Inc. estimated Monday.
Other data released Monday indicated the positive inflows continued this month, albeit at a slower pace.
Investors apparently largely shrugged off the investigations of fund industry trading practices that have led some firms to settle civil charges with regulators and forced the ouster of dozens of executives.
However, Putnam Investments, the No. 5 U.S. mutual fund family, suffered an additional $9-billion drop in assets under management last week, its parent, insurance broker Marsh & McLennan Cos., said. The disclosure, made in a Securities and Exchange Commission filing, showed Boston-based Putnam managed $247 billion in assets as of Nov. 21, down from $256 billion on Nov. 14.
This month, Putnam assets under management have tumbled $30 billion, or 11%, after federal and Massachusetts regulators accused Putnam of securities fraud in connection with the widening probe of improper mutual fund trading.
Marsh said Putnam had been able to handle client redemptions without increasing transaction costs.
Putnam ousted Lawrence Lasser as chief executive this month after the firm was accused of fraud. The company has settled the charges with federal regulators.
Several public pension funds -- including the largest, the California Public Employees' Retirement System -- have fired Putnam. On Friday, Wal-Mart Stores Inc., the largest U.S. private-sector employer, removed two Putnam funds from its employees' 401(k) retirement plan.
Lipper calculated that eight fund firms named in various investigations or making voluntary admissions had net outflows from all asset classes amounting to $3 billion in October.
That compares with outflows of $7.9 billion in September from the four companies initially named in a probe by New York Atty. Gen. Eliot Spitzer on Sept. 3.
"While some of the fund brands named suffered outflows, the discouraging news of wrongdoing did not send fund investors to the sidelines by any means," Lipper senior research analyst Donald Cassidy said.
The October inflows for stock funds were well above September's net inflow of $17.3 billion and just above August's total of $23.4 billion. Net cash flows are new purchases minus redemptions.
Investors have been net buyers of stock funds since March as the market has recovered from its worst decline in a generation. The average U.S. stock fund is up 24% this year, according to Morningstar Inc.
But Cassidy said cash inflows might be less favorable this month because of a retreat in stock prices and a continuing stream of disclosures about fund trading practices.
TrimTabs.com, a Santa Rosa, Calif., research firm, estimates that stock funds will take in $13.5 billion in November, based on a projection of data through Wednesday.
While investors were adding money to stock funds for the eighth consecutive month in October, they pulled a net $3.1 billion from bond funds. Still, the bond fund outflows were the smallest since interest rates bottomed in June, Lipper said.
Money market mutual funds had net outflows of $29.8 billion last month, the first October outflow since at least 1984. Lipper said a rebounding economy might have prompted corporate treasurers to draw down balances in money funds.
The report also noted that money fund yields remain well under 1%, encouraging more individual investors to seek alternatives for their money.