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U.S. stock fund cash inflows surge as rally rolls on

February 16, 2011 | 12:11 pm

Individual investors continue to buy U.S. stock mutual funds at the strongest pace since spring 2009, providing more fuel for Wall Street’s rally.

Net cash inflows to domestic stock funds totaled $4.92 billion in the seven days ended Feb. 9, the largest one-week inflow since May 2009, the Investment Company Institute said Wednesday.

Over the last five weeks U.S. equity funds have taken in a net $16.6 billion. That’s equivalent to only about 0.4% of total fund assets of $4.16 trillion, but it’s the trend that’s important.

Fund net cash flows measure new purchases minus redemptions, so an increase in inflows can mean more buying, less selling, or a combination of the two.

Until the start of this year Americans were net sellers of U.S. stock funds almost consistently since the market “flash crash” last May. Outflows averaged $11.3 billion a month in the second half of 2010, according to ICI data.

Instead of buying domestic stock funds last year, many investors favored either foreign stock funds or bond funds.

But this year foreign-fund purchases have tailed off, hurt in part by losses in key emerging markets such as India and by Middle East social unrest. Foreign funds took in a net $928 million in the seven days ended Feb. 9, or less than one-fifth the inflow to domestic funds.

In the bond market, worries about state and local government finances have triggered heavy investor redemptions from tax-free municipal bond funds since November. Net outflows have eased in the last two weeks, but still totaled $1.5 billion in the seven days ended Feb. 9, according to the ICI.

So U.S. stocks are, in part, winning by process of elimination as the appeal of other assets dims.

And, of course, people like to buy what’s already going up: Major U.S. stock indexes were at new multiyear highs Wednesday as Wall Street continues to bet on economic growth.

At noon Pacific time the Dow Jones industrial average was up 68 points, or 0.6%, to 12,295. It now is up 6.2% year to date.

-- Tom Petruno

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