Investors Added to Stock Funds In February

Despite the market's hiccup at month's end, Lipper doesn't expect investors to bail.
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Investors stepped up their purchases of mutual funds in February ahead of the stock market's swoon.

The inflows came on the heels of the market's strong performance in January.

With holiday bills behind them, investors plunked $43.1 billion into stock and mixed equity funds, or funds that hold both stocks and bonds. That compares with $38.7 billion in January.

Despite the major hiccup that saw the S&P 500 index drop 3.5% on Feb. 27, Lipper doesn't expect investors to yank their money out going forward. Still, senior research analyst Jeff Tjornehoj said that the volatility at month's end made it difficult to gauge the level of "panic selling" by fund investors.

"Given the climate in equities I expected to see pretty healthy flows for the month," Tjornehoj said. "My fear is that

our report was probably a little too optimistic."

World equity funds pulled in $16.5 billion in February, down about $2 billion from January, but still a striking improvement from the $6.9 billion added in December.

Trends held steady for domestic diversified equity funds. Multi-cap funds remained the most popular by a wide margin, tacking on $8.3 billion.

On the flip side, large-cap fund investors took out $2.0 billion, and growth-fund investors withdrew $2.3 billion. Large-caps had the largest outflows for nine of the last 10 months, although in February, investors withdrew far less than the previous month. Lipper sees this as a sign that people are recognizing some value in those funds.

"What might turn this trend around is a softening in equity markets as people turn to household names -- large-caps -- for preservation purposes," Tjornehoj said.

Investors added $33.6 billion to money market funds, a marked improvement over January, when they pulled around $12 billion from these instruments.

Bond funds took in about $15.1 billion in February, down slightly from $15.4 billion January. However Tjornehoj said that February's level was "a better reflection of the amount of money that tends to get set on autopilot in many people's defined contribution plans."