Cash Flow Spotty into Mutual Funds

Article excerpt

NEW YORK (AP) _ The flow of money into mutual funds remains spotty, creating doubts about whether the stock and bond markets can do better in the second half of 1994 than they have through the first six months of the year.

In a monthly report issued Wednesday, the Investment Company Institute said net cash flow at long-term funds totaled $11.7 billion in May, up from $8.7 billion in April.

But the total was barely half the $21.4 billion inflow reported a year ago, in May 1993, and investors still showed little enthusiasm for bond funds, which have been hit especially hard by rising interest rates since last fall.

The ICI, a Washington-based mutual fund trade group, reported that May 1994 net cash flow into stock funds was $12.1 billion. Bond funds had a net outflow of $411 million, on the heels of a $2.9 billion drain in April.

The institute defines net cash flow as sales of new fund shares, minus shares redeemed by investors, plus net money that comes into the funds through reinvestment of dividends and exchanges from one fund to another.

"The bond market has experienced a virtual evaporation of public demand for bond mutual funds," says Michael Metz, chief investment strategist at the Wall Street firm of Oppenheimer Co.

By contrast, Metz observes in a report on potential market influences through the rest of the year, "equities have continued to benefit from the fact that flows into mutual funds are holding at high, although under-peak levels.

"Unfortunately," Metz argues, "it is probably only a matter of time before individuals become less convinced that equity prices can do nothing but rise.

"Average inflows have had to exceed $10 billion monthly just to produce a slight upward bias for equities. …