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Stock Funds Get Renewed Interest

A $16.1-billion inflow for April suggests that investors may be getting their confidence back.

May 30, 2003|Josh Friedman | Times Staff Writer

Wall Street's rebound is luring small investors back into stock mutual funds.

Investors poured a net $16.1 billion into the funds in April, the biggest monthly inflow in more than a year, the industry's chief trade group said Thursday.

The buying has continued this month, according to unofficial estimates from fund trackers. If they are right, April and May would mark the first time in a year that the funds have seen back-to-back cash inflows.

A continued pickup in fund investing could help extend the market's latest rally, some analysts say. Stocks were mixed Thursday, but since March 11 the blue-chip Standard & Poor's 500 index has surged 18.6%.

April saw the largest net inflow to stock funds since March 2002, when $29.6 billion piled in, according to the Investment Company Institute. Net cash flows are new purchases minus redemptions.

From June through March, stock funds suffered net withdrawals in all but one month, institute data show. Investors bailed out as the stock market hit five-year lows last year, with shares reeling from revelations of corporate and Wall Street scandals and because of the sputtering economy.

For all of 2002, equity funds had a net outflow of $27.1 billion -- the first full-year outflow since 1988, according to the institute.

Instead of buying stock funds, many investors last year bought bond funds, seeking the relative safety of fixed-income securities.

But as yields paid by bond funds have declined with the plunge in interest rates, hunger for the funds may be ebbing.

Bond funds took in $10.6 billion in April -- the first month in a year that they were less popular than stock funds, the institute said. Bond funds had a record $140.5-billion inflow in 2002.

Many financial advisors have warned investors that bond fund share prices could tumble if interest rates suddenly turn up, making older, lower-yielding bonds less valuable.

"We've been encouraging [investors] to maintain a balanced portfolio between stocks and bonds," said John Demming, spokesman for fund giant Vanguard Group in Valley Forge, Pa.

Stock funds also may be benefiting as more investors yank cash from low-yielding money market funds. Money funds saw a net cash outflow of $53.7 billion in April, and $126.8 billion has left this year, the institute said.

As of April 30, investors had $2.77 trillion in stock funds, $2.16 trillion in money funds and $1.56 trillion in bond funds.

Continued stock fund inflows would quell industry fears of a repeat of the late 1980s, when investors pulled money from equity funds in 14 of 15 months after the October 1987 market crash.

Santa Rosa, Calif.-based Investment Research estimates that stock funds are on track to take in about $5 billion in May.

"There is money coming back in but in small amounts," said TrimTabs President Charles Biderman. He said that many investors still feel "once burned, twice shy" about stocks and that much of April's fund inflow probably was fueled by last-minute IRA funding ahead of the April 15 tax deadline.

Boston-based Fidelity Investments and Vanguard, the two biggest mutual fund companies, said they expected "strong" cash inflows overall this month, with stock funds remaining more popular than fixed-income funds.

At Fidelity, growth-oriented funds have been among the top choices in the last two months, indicating a willingness among investors to accept more risk, a spokesman said. In April, Fidelity had a $1.9-billion net inflow to stock funds, the best month since March 2002.

Vanguard expects a $2.2-billion inflow for stock funds this month, up from $1.8 billion in April but off from March's pace.

San Francisco-based Charles Schwab Corp., which runs a supermarket of funds, said this month's equity net inflows totaled $1.7 billion through Wednesday, up from $1.4 billion for all of April.

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