Mixed Picture on Fund Flows

Updated from 11:35 a.m. EST

Mutual fund investors appeared to be somewhat divided on how to deal with the slumping stock market in the last week, based on the contrasting results of two major surveys of capital flows.

Funds investing in equities had net outflows of $1.7 billion in the week ended March 24, following a $1.5 billion deficit the previous week, according to Trim Tabs Investment Research.

Meanwhile, AMG Data Services' latest survey showed net equity fund inflows of $582 million for the same period, after a net outflow of $22 million the previous week.

Phil Edwards, a managing director at Standard & Poor's, said the continuation of outflows might indicate a minor trend among active mutual fund investors.

The outflows a week ago followed renewed concerns about terrorism triggered by the group of blasts in Madrid two weeks ago, which contributed to the recent broad-based decline in stock prices, including a 6% correction for the Dow Jones Industrial Average.

"It doesn't surprise me that inflows to mutual funds have declined over the last week," Edwards said. "It's always the case that cash follows performance."

But Edwards also cautioned against making too much of short-term movements. He said mutual funds saw $150 billion in inflows in 2003. And according to the Investment Company Institute, some $49.78 billion flowed into mutual funds in January alone, which happened to be when the major indices were routinely hitting new highs in their year-long rally. In February, when the major indices appeared to be heading for a retreat and many strategists were almost counting the days to a long-awaited and much overdue correction, fund inflows slowed dramatically to $20.6 billion, according to AMG data.

Trends aside, Edwards noted: "There's still $7 trillion invested in mutual funds, and if you're talking about $3 billion in outflows, it's [the equivalent of] a rounding error," he said.