- Posted February 15, 2012
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Investors hold steady in stock funds in January
MARK JEWELL,AP Personal Finance Writer
BOSTON (AP) -- A January market rally wasn't enough to get investors back into stock mutual funds in a big way. But they did stop pulling out more cash than they were putting in, ending an eight-month string of net withdrawals.
Industry consultant Strategic Insight said on Monday that deposits into U.S. stock mutual funds roughly equaled withdrawals in January. It was the first month since April that withdrawals didn't outpace deposits. Net withdrawals totaled $137 billion over the last eight months of 2011 as investors worried about Europe's debt crisis and indications that the U.S. and global economic recoveries might be stalling.
The movement of money into stock funds is an indicator of investor confidence, and economic news became more encouraging last month. The market had its best start in 15 years, with the Standard & Poor's 500 index returning 4.5 percent.
However, mutual fund investors were still cautious. Although funds specializing in relatively low-risk dividend-paying stocks attracted $4 billion in new cash in January, investors continued to withdraw from funds in higher-risk segments of the market.
Most investors "are still on the sidelines due to uncertainty," said Avi Nachmany, research director with New York-based Strategic Insight.
Data from another fund researcher suggested anxiety remains high. Morningstar Inc., on Monday reported nearly $2.8 billion in net withdrawals from stock funds in January. Data from industry researchers can vary significantly, because of differences in how fund flows are counted, and how many funds are included.
Other details of how investors moved their money in January, according to Strategic Insight:
-- Foreign stock funds: Investors deposited a net $3 billion. That marked a turnaround from December, when investors withdrew a net $11 billion amid continuing fears about whether the European debt crisis might spin out of control. Those concerns eased in January, as did worries that economies in fast-growing countries like China might stall.
-- Bond funds: Investors deposited a net $32 billion. About $26 billion in new cash was added to taxable bond funds, which includes corporate bonds. Another $6 billion was deposited into municipal bond funds, which invest in bonds issued by state and local governments. Last year, bond funds attracted about $116 billion in new cash, extending a trend of conservative investing that has persisted since the financial crisis in 2008.
-- Money-market funds: A net $44 billion was withdrawn from these funds last month, marking a reversal from the $39 billion in net deposits in December. Money-market funds are designed to be safe harbors where investors can temporarily park cash and quickly access it when needed. However, their appeal has been reduced because returns have been barely above zero -- they're now averaging 0.03 percent -- for about three years. Money fund returns are closely tied to interest rates. Prospects of higher returns dimmed last month when the Federal Reserve said it doesn't expect to raise its benchmark rate until late 2014, at the earliest, because the economic recovery remains fragile.
-- Exchange-traded funds: Investors deposited a net $28 billion into ETFs, which bundle together investments in a particular market index. It was the biggest monthly intake for ETFs since September 2010, when they also attracted $28 billion in new cash. Unlike mutual funds, ETFs can be traded during daily sessions just like stocks. ETFs continue to grow much faster than mutual funds, with net deposits totaling $115 billion last year. It was the fifth consecutive year that ETF flows have topped $100 million.
Published: Wed, Feb 15, 2012
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