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Fund Investors Run With the Rally

Fund investors favor equities, again mirroring the market's strong recent advance.

Equity funds continued to appeal to investors in the week ended Aug. 25, taking in $900 million compared with inflows of $1.3 billion in the prior week, according to TrimTabs. But analysts say the assets heading into equity funds since May are not pointing to much speculative interest in stock funds.

Rival fund-tracking firm AMG Data reported equity inflows of $555 million for the week, with 41% going to domestic funds, after a flat performance last week.

"With equity inflow averaging only $5 billion per month for May through August, speculative interest is nil," says Carl Wittnebert, TrimTabs director of research. "The last such period was at the end of 1998, following the upheaval in emerging market debt and currencies."

Charles Biderman, TrimTabs president, says inflows in the current $5 billion range are generally on par with the amounts employees add to their 401(k) accounts on a monthly basis. He says inflows over $10 billion would indicate speculators entering the market.

"The markets have been flat this summer, so there is no incentive for investors to put in money," says Paul Mendelsohn, strategist for Windham Financial. "The two run with each other." The

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S&P 500

, for instance, is down 1.4% over the past three months.

Equity funds that invest primarily in U.S. stocks had inflows of $800 million compared with inflows of $1.5 billion the prior week, says TrimTabs. International equity funds had inflows of $100 million, in contrast to outflows of $200 million the prior week.

AMG says taxable bond funds saw net cash inflows totaling $749 million, with the most going to high yield corporate bond funds, $264 million, followed by government bond funds.

Money market funds reported outflows of $14 billion, according to AMG, while municipal bond funds reported net cash outflows of $24 million. High yield municipal bond funds reported net cash flows totaling $156 million, the largest inflow into that sector since November 2003.