Equity mutual fund investor confidence improved in June, with $22.37 billion of net new cash going into equity funds, up 31 percent from May net flows of $17.04 billion, according to the Investment Company Institute.
May had been a slow month for equity fund sales, with sales decreasing 50 percent from April's net flows of $34 billion, according to the ICI.
Net new cash flow into long-term equity and bond funds was $20.6 billion in June, up 112 percent from May, when inflows were $9.7 billion, according to the ICI.
It is remarkable that the fund industry has continued to attract sizable net sales when the markets have been doing so poorly since March, said Burton Greenwald, president of B.J. Greenwald Associates of Philadelphia. The overall strength of the economy is buoying fund sales in spite of poor market performance, said Steve Cummings, a spokesperson for Financial Research Corp. of Boston.
Year-to-date through June 30, the Dow Jones Industrial Average was down 9.18 percent, the Nasdaq Composite Index was down 2.54 percent and the Standard & Poors 500 Index was down 1.00 percent, according to Lipper of Summit, N.J. Despite these indexes' declines, the average equity fund managed to rise 2.08 percent through June 30, according to Lipper.
Market performance continued to be mediocre in June, according to Lipper. However, the Nasdaq staged somewhat of a comeback. The Dow Jones Industrial Average declined 0.71 percent in June, while the Standard & Poor's 500 Index inched up 2.39 percent. Nasdaq, however, was up 16.62 percent. The average equity fund was up 4.98 percent in June, according to Lipper.
The mutual fund industry does not appear so strong if June's net withdrawals in money market mutual funds are included in the figures.
If all types of mutual funds - bond, equity and money market funds - are taken into account, the industry suffered net withdrawals of $2.48 billion in June, an 82 percent decrease from net sales of $27.9 billion in May, according to the ICI.
While the industry generally focuses on long-term fund figures, particularly equity flows, it makes more sense to include data for all types of funds, especially money market funds, said Geoffrey Bobroff, president of Bobroff Consulting of East Greenwich, R.I.
"When the market is not doing so well, this is where investors tend to park their money," Bobroff said. "The fact that money market funds had net losses surpassing sales of other funds in June means that the industry had net losses. The market has been unsettled since March, and investors are taking their money elsewhere."
Investors may be pulling fund investments and using them for quarterly estimated tax payments, housing upgrades, summer travel, large-ticket-goods purchases, and, in the case of institutional investors, for exchange-traded funds, said Donald Cassidy, a senior research analyst at Lipper.
Lipper also published June flow figures, which indicate an even greater net loss for the industry than ICI's figures.
According to Lipper, June's overall mutual fund industry total was $22 billion in net withdrawals, contrasting sharply with roughly $11 billion in net inflows in May. These sizable net withdrawals do not bode well for the industry, which has only seen net withdrawals following the mini crashes of October 1998 and August 1997, Cassidy said.
Lipper's and ICI's figures differ because Lipper subtracts performance from net flows to provide a picture of new money rather than of asset growth, Cassidy said. In addition, Lipper includes institutional classes, he said. Lipper also tracks 30,000 funds, more than ICI, which tracks only its members, Cassidy said.
The ICI includes figures from its 7,902 members, including institutional assets, an ICI spokesperson said. Overlaying performance figures on sales figures results in a rough estimate of fund flows, the spokesperson said.