Mutual Funds See Net Outflows in July

Uncertainty over the economy accelerated in July, causing U.S. mutual fund investors to net redeem an estimated $16 billion in cash out of U.S. stock and bond mutual funds, according to Strategic Insight.

July redemptions equaled about 0.2% of assets held in stock and bond funds.  

Strategic Insight (SI), an Asset International company, said the extraordinary decline of stock prices in early August resulted, not surprisingly, in accelerating redemption. In the first week of August, SI estimates that stock fund net redemptions equaled about 0.3% of the more than $6 trillion held in equity funds. Meanwhile, the dramatic volatility of the second week may have resulted in further stock fund net withdrawals of about 0.5% of stock fund assets. These ratios – suggesting that just $3 to $5 out of $1,000 invested in stock funds net redeemed during each week of the market extreme volatility – are nevertheless reassuring, and in line with historical redemption patterns studied by SI over the past 20 years and before.  

July’s fund flows data already suggested fragile investor confidence. In July 2011, bond mutual funds saw net inflows of $8.4 billion, led by demand for global and emerging markets bonds, as investors continued to put money into taxable bond funds in a search for alternatives to low-yielding cash vehicles and as low-risk ways of participating in financial markets. Through the first seven months of 2011, bond funds saw net inflows of $77 billion, a healthy pace if off from 2010’s pace. Strategic Insight expects demand for select bond funds to persist as near zero yields on cash and stock market high anxiety certain to persist for a long time.   

Demand for stock funds weakened in July and redemptions spiked in early August. (Notably, positive inflows into stock ETFs roughly matched traditional equity funds’ outflows in July.) U.S. equity mutual funds saw net outflows of $23 billion in July, and international/global equity funds saw net outflows of nearly $1 billion.  

Money-market funds saw net outflows of $113 billion in July. This represented a widening of outflows from June, when money funds saw net outflows of $44 billion.