Outflow From U.S. Stock Funds Slows

Investors reversed November's outflow in December, putting $1.29 billion of new money into stock funds, according to the Investment Company Institute.
In November, stock funds gave up $9.94 billion as markets looked shaky in the wake of the credit crunch and a mixed economic picture.

Thanks to a declining market, December's inflow wasn't enough to prevent a 1.1% decline in stock fund assets. The major indexes were down slightly for December, despite a late-month rally. The S&P 500 dropped the most at 0.86%.

The Federal Reserve slashed its key rate to 3.5% in December, but that failed to strongly boost the markets.

December was the ninth straight month in which investors favored international funds over those that invest in the U.S.

U.S. stock funds disgorged $7.96billion to fleeing investors. The outflow was a marked decrease from November's $14.58 billion.

World equity funds took in $9.26billion in December, up from $4.64 billion in November.

Overseas equity funds continued to get a boost in performance from the sliding dollar. Though the buck rallied somewhat against the yen and the euro, it continued to slide against the British pound.

In all of 2007, stock funds picked up $92.44 billion in new money. A year earlier the total was $159.44 billion.

Cash in all stock funds was 4.2% of assets in December, the same as November's figure and up slightly from last year's 3.9%.

Inflow to hybrid funds, which invest in stocks and bonds, slowed. They drew in $810 million in December against $874 million in November. They picked up $22.13 billion for the year vs. $7.06 billion in 2006.

Bond fund inflow decelerated to $584 million from $1.96 billion in November, but taxable bond funds posted inflow of $4.05 billion, up from November's $3.08 billion.

Muni Bonds Suffer

Municipal bond flows suffered as news of financial problems at bond insurance firms spread. Investors pulled $3.48 billion from municipal bond funds, more than twice the $1.12 billion November outflow.

For the full year, taxable and muni bond funds picked up $108.52 billion in new money vs. $60.58 billion in 2006.

Money market funds flow, often erratic, fell to $35.52 billion in December, down from the previous month's $101.37 billion and October's $105.81 billion.

Much of the change was driven by retail investors as opposed to institutions.

Institutional funds had an inflow of $16.69 billion, against retail funds that took in $18.83 billion.

In November, the money funds marketed to individuals made up $40.91 billion of the inflow, a much smaller proportion than December's.

For 2007 the money market funds have taken in $660.68 billion. That handily beats 2006, when the total inflow was $246.92 billion.

Outlook For January

January looks like a month of more outflow from stock funds, with bond funds picking up slightly.

TrimTabs estimated investors pulled $5.59 billion from U.S. stock funds from Dec. 26. through Jan.26., despite the promise of a cut in the fed funds rate.

As markets such as China and Brazil, once the belles of the ball, have faltered, investors took an estimated $1.03 billion from world equity funds over the same period.

That would reverse the trend of international equities' inflow over the past several months.

Bond fund inflow is estimated at $999 million for the month through Jan. 26.

The Fed's half-point 18ate cut on Wednesday, which cut the federal funds rate to 3.0%, came too late in the month to salvage January's inflow.

In fact, the markets seemed less than thrilled with the latest Fed action, closing lower after a midday rally.

The yield on the 10-year Treasury bond went to 3.70%, boosting prices on both Treasuries and Treasury inflation-protected securities. On Dec. 26, the yield stood at 4.60%.

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