Stocks Down in Feb. but Equity Inflows Continued

The equities markets may be on a long-term fritz, but that hasn’t stopped fund investors from taking stock positions in their portfolios, according to new Strategic Insight data.

According to a Strategic Insight news release, U.S. mutual fund investors added an estimated $17 billion of cash inflows to stock mutual funds in February, despite the 3% decline in the S&P 500 during that month. The data showed about half of the February stock fund net inflows were to international / global equity funds, with the balance added to US-centered funds.

Meanwhile, bond funds’ February inflows totaled $12 billion and money market funds added nearly $95 billion, with further gains in March.

The inflows to stock mutual funds in February marked a reversal from net redemptions out of equity funds experienced in January, a month during which the average stock fund investor lost over 6%. With more than two-thirds of equity fund assets designated for retirement savings and their very long time horizons, most mutual fund investors have taken stock market volatility in stride; and some investors continue to benefit from “buying on market dips” and dollar-cost-averaging, the research firm said.

Asset allocation, the dominant investment theme in recent years, continues to drive fund choices even during the alarming 2008 financial market volatility, according to the analysis.

As a result, there was continued demand this year for funds-of-funds (including target-date lifecycle funds), mutual fund “wraps,” international/global funds, and bond funds, all of which are areas that experienced large gains in 2007, Strategic Insight said.