As the markets went through further volatility in reaction to the deepening crisis of confidence in the banking system, many mutual fund investors decided to move out of their holdings.

“Money is leaving the stock market and money market funds for the equivalent of the mattress, seeking safety in Treasuries and accounts in strong banks,” explains TrimTabs CEO Charles Biderman. “There is a huge amount of sideline cash that wants to return to the stock market. What’s necessary for that to happen is a return of confidence in the system.”

A $41 billion outflow from equity mutual funds and a $22 billion outflow from bond funds took place for the month ending September 26, according to TrimTabs Investment Research of Sausalito, Calif., and those figures do not include the market meltdown of September 29, when stocks lost $1.4 billion in value. According to TrimTabs, outflows from equity funds totaled $75 billion and inflows reached $95 billion for bond funds for the eight months of 2008 through August 31.

“Given the recent market volatility, investors are currently responding to a variety of compelling forces that include finding some degree of safety, timing the bottom of various markets and sectors, hedging against the dollar weakness they expect down the road and a desire to make money out of a broadly falling market,” says Cameron Brandt, senior analyst with EPFR Global in Cambridge, Mass.

Janet Levaux, MBA/MA, is the managing editor of Research; reach her at jlevaux@researchmag.com.