Outflows from Stock Funds Slowed in August: ICI

Sept. 27, 2002 — Although equity mutual funds suffered an outflow of $2.91 billion in the month of August, that was actually a vast improvement over the record $52.61 billion that left stock funds in the prior month, according to the latest data compiled by the Investment Company Institute (ICI).

The ICI noted that domestic stocks funds had an outflow of $629 million in August, compared with an outflow of $49 billion in July. Stock funds that invest overseas had an outflow of $2.28 billion in August, compared with an outflow of $3.61 billion in July.

Bond funds — taxable and tax-free combined — had an inflow of $17.37 billion in August, compared with a record monthly inflow of $28.09 billion in July.

Money-market funds had an outflow of $38.36 billion in August, compared with an inflow of $54.56 billion in July. Of the August outflow, funds that are offered primarily to institutions had an outflow of $22.1 billion. Funds that are offered primarily to individuals had an outflow of $16.2 billion.

“August was not quite as punishing a month as July had been, so equity investors were less engaged with the market,” said Geoff Bobroff, president of Bobroff Consulting, a mutual fund consultant based in East Greenwich, R.I., on the more modest outflows from equity funds. “You also should keep in mind that August is a big month for vacations,” he noted.

Bobroff is not impressed by the continued flow of cash into fixed-income funds. “We really need to peel the numbers back,” he said. “You have to wonder, outside of the short-end of the bond market, how much money was really flowing into bonds? I’m not convinced that we saw much of significance in these August numbers.”

Bobroff added that now is probably the worst time for investors to purchase bond funds. “Interest rates are going to go up, and what will the investors do then?,” he said. “They are just chasing trailing returns; they did that on the equity side, and now they’re doing the same thing on the fixed-income side. When interest rates start to move up, the snap-back against bonds will be very painful.”

Year to date through the end of August 2002, equity funds have experienced net outflows of $2.44 billion, versus an inflow $61.56 billion for the corresponding year-ago period.

Year to date through the end of August 2002, bond funds have experienced net new cash inflows of about $103.85 billion, versus an inflow $43.06 billion for the corresponding year-ago period.

Overall, the combined assets of the nation’s mutual funds across all asset categories increased by $10.40 billion to $6.39 trillion in August.

Net New Cash Flow of Lng-Trm Fnds (Bil.$) STCK MUT FNDSAmt in Bil $Aug 02July 02*YTD 02YTD 01*

New Sales69.0072.71642.80670.90

Redemptions-68.78-102.62-612.78-610.43

Net Exchanges-3.13-22.70-32.47-17.41

Net New Cash Flow-2.91-52.61-2.4443.06

BOND MUT FNDS (Taxable) Aug 02July 02*YTD 02YTD 01*