Redemptions still lead new purchases of mutual funds

By Josh Friedman
Los Angeles Times

The stock market has rebounded in the past three weeks, but it's unclear whether mutual-fund investors are buying it.

Stock funds had a $16.1 billion net cash outflow in September, the fourth month in a row that redemptions outpaced new purchases, according to data reported yesterday by the Investment Company Institute, the industry's main trade group.

The outflow streak is the longest since 1988.

In October, stock funds were on pace for another net outflow, according to unofficial estimates.

TrimTabs.com Investment Research of Santa Rosa, Calif., expects a roughly $9.7 billion outflow in October, based on its sampling of funds.

But TrimTabs says stock-fund cash flows have turned positive at many fund firms in the past two weeks, as share prices have revived.

Vanguard Group expects a net inflow of about $580 million this month for its stock funds, while Fidelity Investments expects a "fairly slight" outflow.

Investors continue to flock to bond funds, many of which have risen in value this year as interest rates have fallen.

Bond funds took in a net $15.9 billion in September, the funds' institute said.

Through the first three quarters of this year, stock funds had a net outflow of $18.7 billion, the institute said, while bond funds had a net inflow of nearly $120 billion.

Hybrid funds, which hold a mix of stocks and bonds, had an inflow of $8.3 billion.

Money market funds had an outflow of $157.6 billion through September, the institute said — including last month's record outflow of $62.5 billion, which reduced total assets to $2.16 trillion. Most of those outflows have been by institutional investors moving cash into other investments, with money funds yielding about 1.2 percent on average.