Stock Funds See Biggest Cash Infusion Since 2000
Investors plowed $43.8 billion of net new cash into stock funds in January, the biggest infusion in almost four years and a sign of rising confidence in Wall Street.
January’s tally was up sharply from the net $14.2 billion added in December and marked the 10th consecutive month in which more money has been placed into stock funds than has been taken out, said the Investment Company Institute, the industry’s Washington-based trade group.
Fueling the trend -- which is continuing this month, according to unofficial estimates -- is the bull market that began last March after three years of stock market losses.
“The 2003 statements are in people’s hands now, and they see that their market returns have been good,” said Sam Campbell, analyst at Financial Research Corp., a Boston consulting firm. “They are also hearing more talk on the news about the strengthening economy. They want to put more money to work.”
As benchmark indexes have recovered steadily from the lows that preceded the war in Iraq last year, investors have shifted assets out of bond funds and other conservative vehicles and into the stock market. That inflow has gained momentum despite doubts from some experts about the strength of the economic rebound and concerns from some analysts that stock valuations are too high relative to company earnings and other fundamentals.
Since last year’s low, the blue-chip Standard & Poor’s 500 index has surged 43% -- spelling big returns for investors in popular stock funds tied to the index.
Investors are not focused solely on domestic stock funds. Funds specializing in foreign stocks accounted for $11.2 billion of January’s inflow, or the amount of money invested minus redemptions. That’s up from $4.8 billion in December.
The inflows, however, are eluding some of the funds recently accused of trading practices that benefit a small number of wealthy clients and hedge funds at the expense of other investors.
Among them: Putnam Investments, which had a net outflow last month of $3 billion from its stock and bond funds, and Janus Capital Group Inc., which lost $2 billion, according to estimates by Financial Research.
MFS Investment Management, AIM Distributors and Alliance Capital Management, which also have been touched by the scandal, saw outflows too, Financial Research said.
Since the scandal erupted Sept. 3, more than 20 fund companies have been investigated for alleged abuses, and at least half a dozen firms have been sued by regulators.
Firms that have not been tainted have seen a lot of money coming their way. Los Angeles-based American Funds, which set an industry record last year with a net inflow of $65 billion, picked up where it left off, reaping $11.7 billion in January. Vanguard Group, Fidelity Investments, Dodge & Cox and T. Rowe Price rounded out the top five selling groups.
Among specific funds, American Funds’ Growth Fund of America stayed atop the charts. But Pimco Commodity RealReturn Strategy, a fund touted by Pacific Investment Management Co. bond guru Bill Gross, saw $654 million, boosting its assets to $2.1 billion and making it the industry’s 15th bestseller.
This month, investors were on pace to add $15.4 billion to stock funds, according to TrimTabs.com Investment Research of Santa Rosa, Calif. Although January’s inflow was the third-largest ever, TrimTabs analyst Carl Wittnebert said there was no sign of a “speculative frenzy” in equity funds like that of early 2000. That’s when the 1990s bull market crested before giving way to three years of declines.
Seasonal factors may have contributed to last month’s flows, Wittnebert said. Fueled by year-end bonuses, new investment plans and other factors, January tends to be a strong month. January 2000, for instance, was the second-best month ever for stock funds, with a net influx of $44.5 billion.
Overall fund industry assets grew to a record $7.5 billion last month, ICI data show. Bond funds took in a net $496 million while investors yanked $19.8 billion out of money market funds.
