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Guessing where investors will put their mutual fund dollars may be like predicting the path of a pinball, given current world events, but data through February indicates that investors continue to turn to bond funds.

“You tell me with what is going on in the world today,” said Avi Nachmany, director of research with Strategic Insight, a mutual fund research firm based in New York, when asked about what sales looked like through the middle of March.

March was a very volatile month with the Dow Jones Industrial Average rising some 1,000 points mid-month only to give back much of that gain as the war continued.

The decline is consistent with the $65.8 billion decline in mutual fund assets in February that the Investment Company Institute, Washington, reported. Total assets for the mutual fund industry dropped 1% to $6.268 trillion, it said.

Bond funds had an inflow of $19.62 billion in February, while stock funds had an outflow of $11.11 billion, ICI data indicated. February figures compared with a respective $371 million outflow from stock funds and $12.98 billion inflow into bond funds in January, the ICI added.

In February, there will be $15 billion to $20 billion of expected new inflows into mutual funds with a relatively small number of redemptions given world events, Nachmany says.

Taxable bond funds experienced inflows and net gains were driven by bond funds in general, he adds. Equities experienced $3 billion to $5 billion in outflows in February, he continues.

“By and large, investors are staying the course,” both in mutual fund and 401(k) investments, Nachmany adds.

Data for February provided by Lipper, a division of Reuters, New York, indicated that bond funds had $19 billion in inflows, which Lipper said was the highest total since August 2002 and the third highest on record.

There was a barbell effect, according to Lipper. Investments in bond funds were weighted toward high quality bond funds and high yield or junk bond funds. In fact, junk bond funds took in $3.2 billion in February, more than double the $1.4 billion of inflows in January.

Investors also registered a preference for shorter bond fund durations with $12 billion in inflows compared with $4.5 billion for longer term durations.

Equity outflows, witnessed February outflows of $8 billion except for international funds which took in $1.3 billion in funds, Lipper said.

Lipper estimated that $43 billion in assets flowed out of money market funds in February largely the result of institutional money moving out of funds.

Money market outflows totaled $39.6 billion in February compared with an outflow of $1.23 billion in January, according to ICI.

For the week ending March 26, money market mutual fund assets totaled $2.271 trillion compared with $2.292 trillion for the week ending March 19.

Retail money market funds contributed to total money market funds assets while institutional money flowed out of money markets, according to ICI.

Results for mutual funds through February continued 2002 trends, using year-end data from ICI as a measure.

In 2002, there was an outflow of $27.09 billion from stock mutual funds and $46.66 billion from money market funds. Taxable bond mutual funds had an inflow of $124.05 billion and municipal bond mutual funds, $16.44 billion, in 2002, according to ICI. Hybrid mutual funds experienced net new cash flow of $8.691 billion in 2002, ICI said.


Reproduced from National Underwriter Edition, April 7, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.