Investors Pull $1.23 Billion From Funds

Thursday August 30, 6:11 PM EDT

By Cal Mankowski

NEW YORK (Reuters) - Investors pulled a net $1.23 billion out of stock mutual funds in July amid a stalled stock market and deteriorating fund performance, new industry figures showed on Thursday.

August withdrawals are on track to be even bigger as major U.S. stock market gauges have fallen sharply, according to estimates by a fund data service. The July outflows came after three consecutive months of net deposits.

Stock funds saw net outflows in February and March, but with few exceptions flows have been positive on a monthly basis since the late 1980s.

June's inflows, previously reported at $10.63 billion, were revised to $10.82 billion, the Investment Company Institute (ICI), said trade group for the U.S. fund industry.

TrimTabs.Com, a data service based in Santa Rosa, California, estimates stock funds will have outflows of $10 billion in August. The firm collects data representing 15 percent of fund assets and estimates activity for the industry as a whole. The $10 billion figure is a projection of activity through Aug. 28.

Stocks fell to their lowest levels in nearly five months on Thursday, with the Dow Jones Industrial average (DJI) slipping below the 10,000 mark. The Dow is down 8 percent year to date, while the Nasdaq composite (IXIC) is down 27.5 percent.

Stock funds had inflows of $48.04 billion year to date compared with $231.84 billion in 2000. The 2000 figures were buoyed by record inflows in January and February before stocks began heading into bear market territory.

The July outflows amounted to 0.03 percent of the $3.59 trillion in stock fund assets. Fund assets were down $87.11 billion, or 2.4 percent, for the month. The average diversified stock fund fell 2.67 percent in July, according to fund trackers Lipper Inc.

At Vanguard Group, the second-largest U.S. fund company, investors apparently were taking a cautious approach, putting a net $2.15 billion into bond funds in July and $1.15 billion into stock funds. The firm projects that August will see inflows of $2.8 billion into bond funds and $750 million into stock funds, a spokesman said.

Taxable bond funds had inflows of $7 billion in July compared with an inflow of $1.58 billion in June. Municipal bond funds had inflows of $2.33 billion, compared with inflows of $598 million in June, the ICI said.

Retail money market funds, which are offered mostly to individuals, had inflows of $13.16 billion in July compared with an outflow of $14.2 billion in June. Money market funds offered primarily to institutions had outflows of $1.19 billion in July.

The ICI said stock mutual funds investing domestically had inflows of $2.4 billion in July compared with inflows of $9.74 billion in June. World equity funds had an outflow of $3.63 billion compared with an inflow of $1.08 billion.

Lipper data last week showed that funds investing in fast- growing companies saw net outflows of $3.9 billion in July while value funds, which invest in bargain stocks, took in a net $6.1 billion. The ICI does not break down equity flows between the value and growth styles.

The ICI said cash levels at stock funds were 5.6 percent in July, unchanged from June.

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-- Martin Thompson (mthom1927@aol.com), August 30, 2001

Answers

In an economic climate like this it figures that inflows into bond funds (especially treasuries) would be increased, and outflows from stock funds increased. This only reflects growing negativism on the part of investors--diminishing faith in common stocks. Not a good sign for imminent stock market advances. The hidden fear here is that stock mutual funds will have to sell STILL MORE stock in order to make cash redemptions--which will only dampen stock prices still further.

-- JackW (jpayne@webtv.net), August 30, 2001.

Great....this whole thing sounds like nothing more than a lose-lose situation.

-- R2D2 (r2d2@earthend.net), August 30, 2001.

My next door neighbor has lost half of her 401 (k) in just the last year and a half, and she is sick about it. It's hard to not be gloomy in the face of things like this.

-- LillyLP (lillyLP@aol.com), August 30, 2001.