Mutual funds got a gush of cash in April when tech stocks charged north, but it looks like flatlining stock prices stole fund investors' thunder in May.
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Investments in stock funds outpaced redemptions by $5.8 billion in May as the
essentially treaded water, according to preliminary estimates from liquidity tracker
. This is a far cry from April, when stock prices rose and stock funds were in the black by some $25 billion, and March, when sagging stocks coincided with a record $20 billion net outflow from stock portfolios.
Net cash flows to U.S. stock funds since Jan. 1 are just $38.5 billion, compared with $136.7 billion over the same period last year, by TrimTabs.com's tally.
Some observers will say these flow figures augur sunny days ahead on Wall Street, while others will predict doom and gloom, since flows can be interpreted in many ways. But the most certain conclusions to draw from these data are that many fund investors still chase returns with their investments and that, in sum, they're far less confident in the stock market.
A look at stock-fund flows and stock performance shows that fund investors haven't been too willing to write checks to fund companies whenever stocks have tumbled in recent days and weeks. While understandable -- particularly since many investors rode the sizzling tech sector to significant losses over the past year -- the performance-chasing reflex can ensure that investors are buying high and selling low.
Cash flows to mutual funds are closely watched as a barometer of investor sentiment, and they can give dry powder to both bulls and bears. For instance, optimists might make the logical argument that rising inflows are a positive sign for the market because fund managers putting that cash to work in the market would help boost stock prices.
But last year a record $309 billion flowed into stock funds, according to the
Investment Company Institute
, the fund industry's largest trade group, and that didn't keep the S&P 500 and the Nasdaq from losing 9% and 39%, respectively. In fact, in the up-is-down world of Wall Street, pessimists can read high inflows as a sign that stocks have hit a near-term high.
While flow figures may lead to murky conclusions for professional pundits, this year's figures do demonstrate starkly the lasting effects of the Nasdaq's collapse last year. So far in 2001 money market funds and bond funds have raked in more cash than stock funds.
U.S. and foreign stock funds have gathered less than $30 billion so far this year, by TrimTabs.com's count, compared to nearly $175 billion through the first five months of 2000.
A look beneath the broader flow data indicates that fund investors are fleeing the tech- and tech-stuffed growth funds that have lost 46.9% and 24.4%, respectively, on average over the last year, but not in droves. Through the end of April, cumulative outflows from big-cap growth and tech funds totaled more than $4 billion compared to a positive $108 billion in-flow last year, according to Boston fund consultancy
. While those outflows reflect a significant shift in taste, they're not significant compared to the more than $777 billion in those funds' coffers.
By comparison, fund investors are far more smitten with big- and mid-cap value funds -- up 4.6% and 6.2% on average over the past year-- which hunt for bargains and rarely load up on tech. All told, these two categories' net flows are positive by almost $20 billion through April 30, according to FRC. Both were in net outflows last year.