Investing in stock mutual funds rose in April

Dollars & Sense

Wall Street's rebound is luring small investors back into stock mutual funds.

Investors poured a net $16.1 billion into the funds in April, the biggest monthly inflow in more than a year, according to the industry's chief trade group.

The buying continued into last month, according to unofficial estimates from fund trackers. If they're right, April and May would mark the first time in a year that the funds have seen back-to-back cash inflows.

April saw the largest net inflow to stock funds since March 2002, when $29.6 billion piled in, according to the Investment Company Institute. Net cash flows are new purchases minus redemptions.

From June through March, stock funds suffered net withdrawals in all but one month, institute data show. Investors bailed out as the stock market hit five-year lows last year, with shares reeling from revelations of corporate and Wall Street scandals along with the sputtering economy.

For all of 2002, equity funds had a net outflow of $27.1 billion - the first full-year outflow since 1988, according to the institute.

Instead of buying stock funds, many investors last year bought bond funds, seeking the relative safety of fixed-income securities.

But as yields paid by bond funds decline with the plunge in interest rates, investors' hunger for those funds may be ebbing.

Bond funds took in $10.6 billion in April - the first month in a year that they were less popular than stock funds, the institute said. Bond funds had a record cash inflow of $140.5 billion in 2002.

Many financial advisers have warned investors that bond funds' share prices could tumble if interest rates suddenly turn up, making older, lower-yielding bonds less valuable.

"We've been encouraging [investors] to maintain a balanced portfolio between stocks and bonds," said John Demming, spokesman for fund giant Vanguard Group in Valley Forge, Pa.

Stock funds may be benefiting as more investors yank cash from low-yielding money market funds. Money funds saw a net cash outflow of $53.7 billion in April, and $126.8 billion has left year to date, the institute said.

As of April 30, investors had $2.77 trillion in stock funds, $2.16 trillion in money funds and $1.56 trillion in bond funds.

Josh Friedman is a reporter for the Los Angeles Times, a Tribune Publishing newspaper.