Cash Deserted Equity Funds at Record Pace in July:

Aug 30, 2002 — Deepening turmoil in the stock markets led to a record net outflow of cash from equity funds as $52.63 billion fled stock portfolios in July, versus a net outflow of about $18.28 billion in June, according to the latest data compiled by the Investment Company Institute (ICI).

The previous record for the largest ever monthly outflow of cash in dollar terms was in September 2001, when $29.96 billion left equity funds following the terrorist attacks of September 11. Bond funds, in contrast, had record inflows of $28.14 billion in July, more than double their inflows of $12.21 billion recorded in June.

The ICI noted that though stock funds lost a record $52.63 billion last month, it represented only about 1.7% of total mutual fund assets in the U.S in the previous month. Moreover, ICI said that “despite the sharp sell-off in the stock market and concerns about corporate earnings, corporate governance and the economy, new sales and exchanges into stock funds increased 9.6% in July to $98.91 billion.

The increase in sales, however, was offset by an increase in redemptions and exchanges out of stock funds, which rose to $151.54 billion in July, from $108.49 billion in June. The record month for redemptions and exchanges out of stock funds was $202.21 billion in March 2000.”

Overall, the combined assets of the nation’s mutual funds across all asset categories declined 3.8% from $6.63 trillion to $6.38 trillion in July. ICI explained that the overall decline in industry assets in July was the result of a drop in stock and hybrid fund assets. Stock fund assets experienced a 10.3% decline, ICI said, or the ninth largest decrease. The largest one-month decline occurred in October 1987.

The ICI also noted that “for June and July, the combined $70.91 billion net outflow from stock funds offset inflows of $71.36 recorded during the first five months of 2002. Still, since the end of the bull market in March 2000, net new cash flow to stock funds has totaled $201.38 billion.”

In addition, ICI said the net outflows in June and July amounted to 2.1% of stock fund assets at the end of May, and that the largest percentage two-month outflow was 3.7% in October and November 1987.

With respect to fixed-income portfolios, bond funds, both taxable and municipal, had a record cash inflow of $28.14 billion in July. The previous record was $16.71 billion in August 2001. The June 2002 cash flow into bond funds was $12.21 billion. The year-to-date inflow to bond funds of $86.57billion is only slightly below the record full-year 2001 inflows of $87.70 billion.

Money market funds had an inflow of $54.64 billion in July, compared with an outflow of $43.61 billion in June, ICI said. Of the July inflow, funds that are offered primarily to institutions had inflows of $24.39 billion. Funds offered primarily to individuals had inflows of $30.25 billion.

Year to date through the end of July 2002, equity funds have experienced net new cash flow of only $455 million, versus $48.02 billion for the corresponding year-ago period.

Net New Cash Flow of Long-Term Funds (Bil.$)

STOCK MUTUAL FUNDSAmts in $B July 02June 02*YTD 02YTD 2001*

New Sales72.7067.12573.82600.88

Redemptions-102.60-77.82-544.00-539.87

Net Exchanges-22.72-7.58-29.36-12.99