Investors Cautiously Add to Stock Mutual Funds

Wednesday, 13 Apr 2011 10:31 AM

 

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Investors deposited more money into stock mutual funds last month. But it was a mere trickle, compared with the surge at the start of the year.

A net $400 million flowed into U.S. stock funds in March, industry consultant Strategic Insight said on Tuesday. That's down from nearly $35 billion in net deposits through February, the best start to the year for stock funds since 2007.

Still, the three-month streak of attracting new cash is an about-face from the past two years. After the market meltdown in 2008, investors pulled out of stock funds and deposited about $700 billion into bond funds. Those trends held up long after stock prices began to recover in March 2009. Since then, the Standard & Poor's index has nearly doubled.

This year, demand for stock funds should be steady as long as the economy continues to recover, said Avi Nachmany, research director with New York-based Strategic Insight. "Investors are starting to return to the market, and the trauma of the global financial crisis is beginning to heal."

Other details of March fund flows:

• Foreign stock funds: Despite last month's disaster in Japan and growing conflict in the Middle East, investors added a net $10.6 billion to funds that buy foreign stocks.

Overall, foreign stock funds, including those investing in developed markets like Europe and Japan, took in a net $30 billion during the first quarter. However, the amount of money moving into funds that buy emerging markets stocks from fast-growing countries like China and Brazil slowed in the first quarter.

• Bond funds: Investors added a net $15.6 billion to taxable bond funds, a category that includes corporate bonds. About $2.7 billion was withdrawn from muni bond funds, which buy the debt of state and local governments.

Investors have been pulling out of muni bonds since early November, fearing that states and cities are in critically poor financial shape. But the pace of withdrawals from muni bond funds has recently slowed, as fears about a potential wave of municipal defaults ease.

In the first quarter, investors deposited a net $40 billion into taxable bond funds. They continue to attract investors despite the near-certainty that rising interest rates and inflation will eventually cut into bond returns. But taxable bonds still offer attractive income compared with the current near-zero yields for money-market mutual funds and bank deposits.

• Overall: Investors added a net $23 billion into stock and bond mutual funds last month, and $85 billion for the quarter. That was the best quarterly total since investors added a net $124 billion during the first quarter of 2010.

Assets in stock and bond mutual funds totaled about $8.2 trillion at the end of March, up from about $4.7 trillion when the stock market hit bottom two years ago. That growth is the result of market gains as well as net flows into funds.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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