Funds Bleed $16.6 Billion in Latest Week

Investors pulled $16.6 billion from long-term mutual funds in the week ended May 26, the Investment Company Institute said Wednesday. It was the second week of outflows since mid-May, reversing the previous 57 straight weeks of inflows. Long-term funds lost $9.9 billion in the week ended May 12 and managed to take in $4.3 billion the following week ended May 19.

Industry insiders had heralded the strong inflows as a sign of continued investor trust in the markets, even though the lion's share of the money over the past year poured into bond funds and international equity funds.

In the latest week, that trend continued, with bond funds reaping $2.879 billion of new assets, with $2.420 of that into taxable bond funds and $459 million into municipals.

Those inflows offset the $17.387 billion that investors withdrew from equity funds. What was notable in the latest week, however, were the outflows from foreign stock funds, which were hit with $3.945 billion in redemptions. Investors also redeemed $13.442 from domestic stock funds.

Hybrid funds lost $2.102 billion, after having taken in $635 million the previous week. And money market funds also lost, with assets falling to a total of $2.798 trillion. At the peak of their recent popularity as a safe haven amid all of the market and financial services turmoil, in January 2009, money market funds totaled $3.8 trillion.

But money market funds' appeal has since waned, with the best-performing now delivering yields of 20 to 25 basis points. Even that could decline in light of the Securities and Exchange Commission's new money market fund rules which took effect at the end of last month.

Also yesterday, IRA Metals of Scottsdale, Ariz.--citing assets in the largest bullion gold and silver exchange-traded funds--said a growing number of investors are "opting for the original currency of kings, using gold and silver bullion to balance out or even replace mutual funds-based retirement portfolios." As of May 28, the GLD ETF held $49.2 billion and SLV $5.5 billion.

According to Davis Sullivan, IRA Metals marketing director, investors are wary of "the deteriorating political environment and a devaluing USD, and want the security of an asset class with a low historic correlation to world markets."

See related story, "Investors Clamoring for Alternative Mutual Funds."