A net $12.7 billion was withdrawn from U.S. stock funds last month, industry consultant Strategic Insight said on Friday. It was the biggest monthly net withdrawal this year, despite the 1 percent rise last month in the Standard & Poor's 500 index. Through July, nearly $28 billion has been pulled out.
"Investors continue to dismiss the positive trends reflected in steady gains in the economy, employment, real estate prices, and the stock market," said Avi Nachmany, research director with New York-based Strategic Insight.
Investors instead appeared to be focus on avoiding the potential for short-term losses, Nachmany said.
Although cash flowed out of U.S. stock funds last month, investors deposited a net $1 billion into funds investing in foreign stocks. Year-to-date, international stock funds have attracted $34 billion in new cash.
Here are additional details about how investors moved their money in June, according to Strategic Insight:
BOND FUNDS: July's net deposits of $29.2 billion into bond funds came mostly from taxable bond funds. Those funds, which primarily invest in corporate bonds, attracted a net $23.8 billion, about twice as much as June's total. An additional $5.4 billion was deposited into municipal bond funds, which invest in bonds issued by state and local governments.
Through the first seven months of the year, bond funds have attracted a net of about $179 billion in cash. That's about 50 percent more than net deposits into bond funds for all of 2011. Bond fund deposits have exceeded withdrawals for 11 months in a row, beginning last September.
Nachmany predicts that bond funds will continue to attract cash the rest of this year, due to economic and political uncertainty, and expectations that interest rates will remain low for years to come. That would be consistent with trends since the financial crisis, as fund investors have added to bond holdings while withdrawing from stocks—even as stock prices doubled since March 2009.
MONEY-MARKET FUNDS: A net $32 billion was deposited into these funds in July, compared with nearly $44 billion that flowed out in June. Money-market funds are designed to be safe harbors where investors can temporarily park cash and quickly access it when needed. However, their appeal has been reduced because returns have been barely above zero—they're now averaging 0.03 percent—for about three years. Money fund returns are closely tied to interest rates. Prospects of higher returns dimmed in January when the Federal Reserve said it doesn't expect to raise its benchmark rate until late 2014, at the earliest, because the economic recovery remains fragile.
EXCHANGE-TRADED FUNDS: Investors deposited a net $14 billion into ETFs, which bundle together investments in a particular market index. Over the first half of the year, net deposits into all ETFs total nearly $90 billion, putting ETFs on track to record a sixth consecutive year of attracting more than $100 billion in new cash. Unlike mutual funds, ETFs can be traded during daily sessions just like stocks. ETFs continue to grow much faster than mutual funds, with net deposits totaling $115 billion last year.