U.S. stock fund outflows hit 9-month high as more investors cash out

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The public turned tail on stocks last week at a pace not seen since fall, as the market’s continuing slide wore down investor confidence.

U.S. stock mutual funds suffered a net outflow of nearly $5.5 billion in the seven days ended June 8, the Investment Company Institute said Wednesday. That was the biggest net outflow since investors pulled $7.7 billion from the funds in the last week of August.

Fund net cash flows measure new purchases minus redemptions.

Domestic funds were seeing net redemptions all through May as the market edged lower, but the outflows were relatively modest, averaging $2 billion a week. The floodgates opened last week as the Dow Jones industrial average headed for its sixth straight weekly loss.

The outflows still are small compared with the $4.2 trillion total in domestic stock funds. But redemptions can be trouble for fund portfolio managers by forcing them to sell shares to pay departing investors, or by limiting their ability to buy stocks they believe are bargains.

Wednesday’s trading may just push more investors toward the door. The Dow sank 178.84 points, or 1.5%, to 11,897.27, the lowest since mid-March, amid growing fears about the global economy.

Replaying the pattern of much of the last few years, U.S. investors have turned much more dour on domestic stock funds than on foreign stock funds: Foreign funds had a net inflow of cash in May, even as most foreign markets fell along with Wall Street.

And although foreign funds were hit by redemptions last week, the net outflow was $291 million, equivalent to just 5% of what flowed out of domestic funds, according to ICI data.

Where is money going if it’s leaving stocks? Some of it is being channeled into fixed-income securities: Bond mutual funds had a net inflow of $5.4 billion last week, the most since $6.5 billion flowed into the portfolios the week ended May 18.

-- Tom Petruno

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