Stock Mutual Fund Exodus Continues as ETFs See Inflows

October 11th at 8:22am by John Spence

Investors in September pulled cash from equity mutual funds at the fastest rate in 2012 although ETFs continued to see healthy inflows.

“The amount of net deposits that stock ETFs attracted last month was about double the total that was removed from stock mutual funds, suggesting that investors still saw value in stocks,” the Associated Press reports.

Investors redeemed a net $16.3 billion from U.S. stock funds last month, according to the report.

Meanwhile, ETFs drew in $38 billion in new money during September, marking the strongest month of flows in over three years, according to investment researcher Morningstar. [Investors Tired of Lagging Active Funds Pile Into ETFs]

In mutual funds, investors continue to favor the relative safety of fixed-income portfolios. Bond funds attracted cash for the 13th consecutive month. The shift from stocks to bonds likely reflects lingering investor fear after the dot-com bust and financial crisis, as well as older investors rotating into fixed-income assets.

“The uninformed may be moving money from stocks into bonds still, but they are making a grave error in my opinion—there is simply no secret elixir that is going to turn a 1.7% Treasury yield into a winning investment for the next 10 years,” said Daniel Wiener, editor of The Independent Adviser for Vanguard Investors.

The last month that investors added new cash to stock mutual funds was February, the AP reports.

“Insatiable demand for income and a lingering, semi-permanent state of investment anxiety continue to drive the choices for most mutual fund investors,” said Avi Nachmany, research director at Strategic Insight, in the article.

Year-to-date, net withdrawals from stock funds total $49 billion, with about two-thirds of that amount coming over the past three months, AP said. However, international stock funds have attracted $32 billion of inflows.

In ETFs, investors have added $129 billion so far this year.

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