Funds See Inflows Continue

Wall Street’s recovery last year lured investors’ cash to stock mutual funds at the strongest pace since 2000, the funds’ chief trade group said Thursday.

Despite the scandals rocking the industry in the final four months of the year, investors continued to put new money to work in the funds. The net inflow to stock funds was $14.7 billion in December, compared with $14.9 billion in November, the Investment Company Institute said.

For the full year, stock funds took in nearly $153 billion in net new cash, the largest sum since 2000, when the stock market reached its peak.

Gross new purchases of stock funds totaled $848.6 billion last year, down from $898.7 billion in 2002. But redemptions declined at a faster rate than new purchases, so the result was a significant net cash inflow.

Fund cash flows measure new purchases minus redemptions, or sales by existing investors.

Reports from several fund research firms show that the industry’s scandals, centered on trading abuses, have resulted in cash outflows in recent months from the fund companies that have been implicated. But investors have been eager buyers of funds of companies that haven’t been implicated.

Though stock funds returned to favor last year as the market shot higher, investors became net sellers of bond funds later in the year as interest rates rose.

Rising rates devalue older bonds paying lower fixed yields, in turn depressing the share prices of bond funds.

In December, bond mutual funds had a net cash outflow of $2.9 billion, the institute said. That compared with an outflow of $2.7 billion in November. For the full year bond funds still had a net inflow of $31.4 billion, reflecting strong buying of the funds early in the year. But that was down from a net inflow of $140.3 billion in 2002.

Money market mutual funds had a net outflow of $22.8 billion in December and $259 billion for the full year.

At Dec. 31, stock fund assets totaled $3.68 trillion, bond funds held $1.24 trillion and money market funds held $2.05 trillion.