Stock Funds See Cash Inflows Zoom in April

As expected, official data on mutual fund cash flows showed that stock funds were back in favor with small investors in April, as the stock market revived.

Net new cash flow to stock funds was $19.25 billion in April, nearly reversing all of March’s record $20.6-billion net cash outflow, the Investment Company Institute said Wednesday.

Cash flow measures total purchases less redemptions of fund shares.

Private data firms’ estimates of April inflows had been about $20 billion.

As stocks continued to rebound in May, cash flows remained positive to stock funds overall, analysts said. But the inflow might have been smaller than April’s figure.

Stock funds are estimated to have taken in about $7.5 billion in May, said Carl Wittnebert, research director of TrimTabs.com Investment Research Inc., a Santa Rosa, Calif.-based research firm.

ICI data show that investors continued to be net buyers of taxable bond mutual funds in April. The net cash inflow to that sector was $2.56 billion.

But tax-free municipal bond funds had a net outflow of $1.2 billion in April. In part, that might have reflected concerns by California muni bond fund investors about the state’s worsening financial health because of the ongoing energy crisis.

Money market mutual funds had a net outflow of $10.4 billion in April. That reflected stocks’ resurgence and seasonal trends: Many investors pay their annual tax bills due April 15 with savings from money funds.

With the Federal Reserve’s recent interest rate cuts this year, money fund yields are falling quickly.

IMoneyNet.com said Wednesday that the average seven-day simple yield on taxable money funds slid to 3.77% this week from 3.85% last week. The average 30-day simple yield fell to 3.97% from 4.09%.