Investors Pour Into Global Funds

Investors poured a net $177.5 billion into stock mutual funds last year -- the most since 2000 -- with a record amount funneled into funds that buy stakes in foreign companies, a report showed Friday.

The Investment Company Institute, a trade group for the fund industry, said in its report that the inflow was the fifth-highest on record.

Investors profited by steering more of their money into mutual funds that concentrate on foreign companies. Global funds rose 18.5% in value, on average, last year, according to Morningstar Inc. That compares with a 12.2% rise in value for U.S. funds, down from their 32% jump in 2003.

“Investors were aware that the U.S. market was flattening out and that the dollar was continuing to weaken,” said Andrew Clark, senior analyst at Lipper Inc. “The sentiment is that there is more money to be made overseas.” The institute’s report said investors put $67 billion more into global funds than they took out in redemptions, a 186% increase over 2003. The larger category of domestic funds took in a net $110.5 billion, down 14% in 2003.

Bond funds had a net inflow of $10.3 billion last year, down from $31 billion, the institute said.

Net inflow is the amount moving into a fund after redemptions. Balanced funds, which hold a mix of stocks and bonds, had a net inflow of $42.6 billion, versus $32.6 billion in 2003.

The trade group said stock funds had a net inflow of $10 billion in December, down from $21.4 billion in November. Nearly 80% of December’s inflow went to global funds.

Although January figures are not yet available, two independent estimates suggest that investors have cooled toward U.S. stock funds.

TrimTabs Investment Research estimated a net inflow of $187 million for stock funds through Wednesday. AMG Data Services estimated a net outflow of $229 million for the same span.

Last year, by contrast, stock funds reaped a $43-billion inflow in January, the Investment Company Institute said. Typically, January brings strong inflows for stock funds as investors launch 401(k)s or otherwise put cash to work.

“It’s sort of shocking,” said Carl Wittnebert, research director at TrimTabs. “The percentage play is that January is a good month.”

AMG and TrimTabs said domestic funds were hit by net outflows of more than $3.3 billion for the month so far. Those redemptions were somewhat offset by money pouring into global funds.

Investors may be reacting to the U.S. market’s weak start this year, but analysts said the flows could be adding to the downdraft by providing fund managers little new cash to deploy.

For the second straight year, American Funds was the top-selling fund family, according to a report issued this week by Financial Research Corp.

American Funds’ stock and bond funds took in a combined $83.7 billion last year, the report said, on the heels of a $64.5-billion net inflow in 2003. American Funds, a unit of Los Angeles-based Capital Group Cos., had the five best-selling individual funds.

Index giant Vanguard Group of Valley Forge, Pa., was No. 2 in sales, with a $51.3-billion inflow.

Growing interest in exchange-traded funds lifted San Francisco-based Barclays Global Investors to the third spot with an inflow of $43.8 billion.

Exchange-traded funds, or ETFs, hold baskets of stocks or bonds but trade throughout the day at updated prices like individual stocks. Assets in these funds rose to $226.2 billion, from $151 billion a year earlier, the institute said.

Among other California-based fund firms, bond specialist Pacific Investment Management Co., or Pimco, in Newport Beach received $12.5 billion to rank No. 7.

*

Times staff writer Kathy M. Kristof contributed to this report.