Net New Cash Into Stock Funds Tapers Off In July: ICI

Aug. 30, 2004 — Investors continued to pour money into equity funds during July, but at a somewhat slower rate compared to the prior month. Stock funds received a $9.46 billion in net new cash, down from $10.40 billion in June, according to the Investment Company Institute.

Bond funds improved quite a bit during the month, but still remain largely ignored by investors. In July, fixed-income portfolios had a net outflow of $1.22 billion, compared with a $7.57 billion outflow in June. Taxable bond funds had an inflow of $62 million in July, compared with an outflow of $4.27 billion in June. Municipal bond funds had an outflow of $1.28 billion in July, versus an outflow of $3.29 billion in June. Hybrid funds, which hold stocks and bonds, took in $3.00 billion net new cash in July after taking in $2.42 in June.

“Cash flows into bond funds appear to be reaching a state of stability as the impact of higher interest rates has already done their damage to these portfolios,” noted Louis Harvey, president of Dalbar Inc., a Boston-based mutual fund consultant. “Those who want to flee bonds because of the tightening environment have already done so, while others will hold onto their investments.”

Harvey said he thinks cash flows into fixed-income funds will likely remain flat for the remainder of the year. “The only way that bonds can see any significant net inflows would be if the price of oil reached and maintained such a high level as to drag down the U.S. economy and thereby prevent the Fed from raising rates.”

The ICI also noted that among equity funds, funds that invest primarily overseas posted an inflow of $2.96 billion in July, versus an inflow of $2.79 billion in June. Of funds that invest primarily in the U.S., only aggressive growth and sector funds had outflows, $583 million, and $219 million, respectively.

Year-to-date through July, equity funds have gained $127.89 in net new cash billion, far ahead the $57.04 billion figure for the year-ago period.