Stock Funds Continue to Attract Investors

Wall Street’s rebound helped lure investors back to stock mutual funds in August, and the industry’s cash inflows have continued this month, data show.

Bond and money market funds, meanwhile, have continued to lose assets as interest rates have risen since mid-June, devaluing older bonds.

Stock funds had a net inflow of $22.9 billion in August, the biggest one-month gain since March 2002 and a slight rise from July’s $21.4-billion inflow, according to a report Monday from the Investment Company Institute, the funds’ trade group.

Fund cash flows measure new purchases minus redemptions.

Bond funds had a net outflow of $12.6 billion in August after losing $10.8 billion in July. Money market funds lost $20.2 billion in August and $12.9 billion in July.

Small investors had been net sellers of stock funds in the second half of 2002, but they have been net buyers since March as the equity market has surged. The Standard & Poor’s 500 index has jumped 26% since mid-March. It was up 1.8% in August.

Fidelity Investments said its stock funds took in a net $2.4 billion in August and were on track to take in more than that this month, a spokesman said.

Vanguard Group said its stock funds also continued to see strong buying this month.

One issue hanging over the industry was the investigation announced Sept. 3 by New York Atty. Gen. Eliot Spitzer. He alleged that a hedge fund engaged in illegal or improper trading of shares at four fund companies, with the firms’ consent.

The fund companies -- Bank of America Corp., Bank One Corp., Janus Capital Group Inc. and Strong Capital Management -- have not been charged with wrongdoing, though Spitzer said his probe was ongoing.

Some industry analysts said they expected to see some investors pulling assets from the four firms named by Spitzer.

On Monday, Standard Insurance Co. of Portland, Ore., said it would end a management agreement it had with Janus. Standard said it had about $185 million in Janus funds at the end of 2002.

A Standard spokesman, Jeff Hallin, said the Spitzer allegations were “one of the factors that we would consider when we go through our due diligence process” of reviewing fund managers.

A Janus spokeswoman in Denver said the firm was disappointed by Standard’s decision, but that “many” other clients “are waiting for all of the facts before making any decisions.”

*

(BEGIN TEXT OF INFOBOX)

Cash flow leaders in August

Los Angeles-based American Funds led all fund companies in net cash inflows to stock and bond funds in August.

Estimated August net cash inflows to long-term funds, in millions:

American Funds: $4,759

Dodge & Cox: $1,028

Vanguard Group: $756

T. Rowe Price: $668

Oakmark Funds: $439

Van Kampen: $428

Liberty Funds: $400

Fidelity Advisors: $383

First Eagle Funds: $369

Franklin Distributors: $355

Source: Financial Research Corp.