Investors continue adding cash to stock funds

AP News
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Posted: May 11, 2011 4:23 PM
Investors continue adding cash to stock funds

Investors continue to put more money into stock mutual funds than they're withdrawing, kicking off 2011 with the fastest start in six years.

April's $5.6 billion in net deposits marks the fourth consecutive month that new cash has come into U.S. stock funds, industry consultant Strategic Insight said on Wednesday.

The year-to-date total of $42 billion is the biggest start to a year since $65 billion came in during the first four months of 2006.

Investors are cautiously returning to the market after the 2008 financial crisis led many to pull out of stock funds and shift into the relative safety of bonds. One factor driving the rebound in confidence is the near-doubling in the Standard & Poor's 500 since its March 2009 low. The stock index rose 9 percent through the first four months of this year, and 3 percent in April.

"The post-crisis wariness is starting to fade," says Avi Nachmany, research director with New York-based Strategic Insight.

Confidence is still fragile but, Nachmany says, demand for stock funds should hold up throughout the year if the economic recovery remains on track.

Other details of how investors are moving their money in April:

_Foreign stock funds: Despite the war in Libya and heightened political unrest in the Middle East, investors added a net $6.7 billion to funds that buy foreign stocks.

_ Bond funds: Investors added a net $18.6 billion to taxable bond funds, a category that includes corporate bonds. That was the biggest haul since October, when net deposits totaled $21 billion.

About $3.9 billion was withdrawn from municipal bond funds, which buy the debt of state and local governments. Investors have been pulling out of muni bonds since early November, fearing that states and cities are in critically poor financial shape.

_ Money-market funds: A net $6 billion was withdrawn from these funds, designed to be safe harbors where investors can temporarily park cash and quickly access it when needed. Their appeal is dim because returns have been barely above zero since early 2009.

_ Exchange-traded funds: A net $23 billion was added to ETFs, which bundle together investments in a particular market index. Unlike mutual funds, they can be traded during daily sessions just like stocks. ETFs have attracted $49 billion in net deposits year-to-date, and are on pace to grow by at least $100 billion for the fifth consecutive year.