Cash Flow Into Long-Term Funds Has Risen Dramatically This Year
By

Net new cash flow into long-term mutual funds has been dramatic so far this year, according to data from the Washington-based Investment Company Institute.

From January to July 2003, the industry reported a net positive new cash flow for long-term funds of more than $129 billion, up 35% from $95.3 billion in the same period of 2002.

[Net new cash flow is calculated from new sales plus net exchanges (investors taking money out of one fund and putting them in another), minus redemptions (investors cashing in their funds).]

Looking at equity funds alone, net new cash flow showed even more striking growth.

From January through July, stock funds reported close to $56.8 trillion in new cash, almost 100 times the $579 billion inflow they reported in the first seven months of last year. Money coming into hybrid funds almost doubled, to more than $15.5 billion from around $8.3 billion.

“Since October [2002], there has been a noted increase in the stock market,” says James Doyle, an ICI spokesman. “Due to the performance of the equity markets, assets in stock mutual funds have climbed.”

There seem to be few lingering effects on investors from the market downturn of recent memory, one analyst observes.

“Investors are performance chasers,” says Donald Cassidy, senior research analyst at Lipper Inc., Denver. “The return to equities was more pronounced than we first thought, because we thought the overhanging pain from the past three years would make them cautious. But we have had a rally of six months here, and the numbers are big.

“Time has done some healing I guess, and people dont want to miss the boat,” Cassidy says.

For bond funds, year-to-date data show that net flow is down but still on the plus side.

Taxable bond funds showed a net new cash flow of $56 billion in the first seven months of this year, compared to $75 billion in the same period of 2002. Municipal bond funds showed only $718 million in net new cash flow, plunging from $11.4 billion the year before, according to data from ICI.

Year-to-date, there was a strong outflow of cash from money market funds, ICI reports, overwhelming a positive inflow reported in June. These funds reported a net new cash outflow of $132.4 billion from January through July 2003, compared to a net outflow of around $56.5 billion for the first seven months of 2002.

Money market funds had an outflow of $9.91 billion in July, compared with an inflow of $22.13 billion in June.

Also in July, stock funds reported an inflow of $21.38 billion, compared with an inflow of $18.63 billion in June. Domestic equity funds accounted for $19 billion of Julys inflow, up from a little more than $18 billion in June. Stock funds that invest overseas had an inflow of $2.38 billion in July, compared with a $591 million the month before.

Hybrid funds had an inflow of $3.53 billion in July, compared with an inflow of $4 billion in June.

Like money market funds, bond funds showed a sharp turnaround, registering an outflow of $10.84 billion, from a net inflow of $5.12 billion they reported a month earlier.

“The July outflow came during a month in which interest rates rose,” explains ICI senior economist Brian Reid. “The outflow is consistent with historic trends during which bond funds register outflows or weakened inflows during periods of rising interest rates.”

Money market funds offered primarily to institutions had an outflow of $5.46 billion in July. Those offered mostly to individuals had an outflow of $4.45 billion for the month, ICI says.

The combined assets of the nations mutual funds increased 7.7% in July from year-ago levels, rising to $6.87 trillion from around $6.38 trillion in July 2002, reports the ICI, in its monthly survey of the mutual fund industry.

Fund assets increased in July over June levels by 0.8%, from around $6.81 trillion, ICI says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 26, 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.