July 29, 2004 — Investors appeared to have regained some confidence in the stock market in the month of June — equity portfolios received a net new cash inflow of $10.45 billion, after attracting only a trickle — $431 million — in the prior month, according to the Investment Company Institute.

Bond funds have somewhat slowed their hemorrhaging of cash, though they remain firmly in the red. During June, fixed-income portfolios had an outflow of $7.44 billion, compared with a $16.23 billion outflow in May. Taxable bond funds had an outflow of $4.21 billion in June compared with an outflow of $11.23 billion in May. Similarly, municipal bond funds had an outflow of $3.23 billion in June, versus an outflow of $5.00 billion in May.

In addition, hybrid funds posted a $2.36 billion net inflow in June, similar to the inflow of $2.29 billion in May.

ICI also noted that among equity funds, funds that invest overseas had an inflow of $2.76 billion in June, compared with an inflow of $1.35 billion in May. Funds that invest primarily in U.S. stocks had an inflow of $7.69 billion in June compared with an outflow of $916 million in May.

“I am somewhat confounded by how much cash went into stock funds in June, given that the major equity indexes have recently hit year-to-date lows,” said Louis Harvey, president of Dalbar Inc., a Boston-based mutual-fund consultant. “I would have expected more modest inflows into equities, as the markets have been so sluggish. Perhaps the June inflow reflects the release of some pent-up cash.”

Year-to-date through June, equity funds have been gained net new cash flow of $118.47 billion, well ahead the $35.57 billion figure in the prior year.

With respect to bonds, Harvey warned that “bond funds will likely continue to suffer cash outflows in the face of expected interest rate hikes, but the magnitude will be somewhat reduced. The stampede out of bond funds that we witnessed in May will be more modest going forward.”

Long-term funds — i.e., stock, bond, and hybrid funds — collectively had a net inflow of $5.37 billion in June, compared with a net outflow of $13.51 billion in May.

Money market funds had a net outflow of $21.55 billion in June, compared with an inflow of $6.55 billion in May. Funds offered primarily to institutions had an outflow of $8.83 billion. Funds offered primarily to individuals had an outflow of $12.72 billion.

Overall, the combined assets of the nation’s mutual funds increased by by $80.9 billion, or 1.1%, to $7.587 trillion in June.

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

Amounts in Billion $

STOCK MUTUAL FUNDS

June 2004

May 2004*

YTD 2004

YTD 2003*

New Sales

72.78

68.39

505.38

387.39

Redemptions

-63.78

-65.65

-395.75

-346.25

Exchanges In

13.27

11.05

93.88

130.72

Exchanges Out

-11.82

-13.37

-85.06

-136.29

Net New Cash Flow

10.45

0.43

118.47

35.57

TAXABLE BOND MUTUAL FUNDS

June 2004

May 2004*

YTD 2004

YTD 2003*

New Sales

22.18

21.17

156.99

201.12

Redemptions

-24.73

-29.31

-158.17

-141.18

Exchanges In

3.21

3.92

25.58

46.13

Exchanges Out

-4.86

-7.01

-35.93

-41.27

Net New Cash Flow

-4.21

-11.23

-11.54

64.80

MUNICIPAL BOND MUTUAL FUNDS

June 2004

May 2004*

YTD 2004

YTD 2003*

New Sales

3.55

3.38

27.09

33.20

Redemptions

-6.13

-7.13

-34.69

-29.17

Exchanges In

0.65

0.76

4.98

8.14

Exchanges Out

-1.29

-2.01

-8.47

-9.41

Net New Cash Flow

-3.23

-5.00

-11.09

2.77

HYBRID MUTUAL FUNDS

June 2004

May 2004*

YTD 2004

YTD 2003*

New Sales

8.43

8.10

60.72

42.03

Redemptions

-6.22

-5.78

-38.67

-31.66

Exchanges In

1.19

1.14

9.09

8.52

Exchanges Out

-1.04

-1.18

-6.73

-7.28

Net New Cash Flow

2.36

2.29

24.40

11.62

* Revised

Contact Robert F. Keane with questions or comments at bkeane@investmentadvisor.com.