Mutual funds continue to attract cash in April; Pace slows from record first-quarter haul

BOSTON – Mutual funds continued to attract cash in April, although the pace slowed from the record amount that flowed in during the first three months of the year. Investors also became more cautious, as bond funds attracted slightly more money than stock funds.

A net $39 billion was deposited into stock funds and bond funds during April, industry consultant Strategic Insight said on Tuesday. The first quarter total was $193 billion, topping the previous record of $140 billion set in early 2007.

The April total includes $9 billion added to U.S. stock funds. It’s the fourth month in a row that deposits have exceeded withdrawals, and net deposits to U.S. stock funds total $58 billion year-to-date. Before January, investors pulled cash from stock funds 10 consecutive months.

If flows continue to be positive, 2013 would be the first year since 2006 that U.S. stock funds have attracted cash, according to Strategic Insight.

In addition to the U.S. stock fund total, about $10 billion was added last month to funds investing primarily in foreign stocks. Bond funds attracted $20 billion.

This year’s deposits into U.S. stock funds have helped push market indexes to record highs, and the Standard & Poor’s 500 climbed nearly 2 per cent in April. For the year, it’s up more than 15 per cent.

It’s clear that fund investors are becoming less risk-averse by putting uninvested cash to work in the stock market. But lower-risk investments including bond funds continue to attract cash, noted Avi Nachmany, Strategic Insight’s research director. So it’s unlikely that large numbers of investors will begin pulling money from bonds and moving it into stocks anytime soon — a scenario that market pros call the Great Rotation.

Even with currently low yields, bonds will continue to attract retiring baby boomers and others who want reliable income for daily expenses, Nachmany predicts.

Here are more details about how investors moved their money in April, according to Strategic Insight:

U.S. STOCK FUNDS: The $9 billion that was added to these funds was down from $13 billion in March, and roughly equal to the February total.

FOREIGN STOCK FUNDS: Investors this year have been adding more cash to funds investing in foreign stocks than they have to U.S. stock funds, and the trend extended into April. The net $10 billion added last month was down from $15 billion in March and $22 billion in February.

BOND FUNDS: The huge cash haul of recent years into bond funds shows no sign of ending. The $20 billion attracted in April was up slightly from $19 billion in March, and down from $23 billion in February. Bonds typically generate smaller long-term returns than stocks but with less chance of short-term losses.

EXCHANGE-TRADED FUNDS: Investors in April deposited a net $7.9 billion into ETFs, which bundle together investments in a particular market index. That’s down from $15 billion in March. A total $1.2 billion was deposited last month into U.S. stock ETFs and foreign stock ETFs, with $6.7 billion added to bond ETFs.

Unlike mutual funds, ETFs can be traded during daily sessions just like stocks. They have attracted more than $100 billion in new cash for the past six years in a row, growing at a far more rapid pace than mutual funds. Year-to-date flows into ETFs total $61 billion. However, assets in mutual funds are still about seven times larger than the total in ETFs.