U.S. Stock Funds Disgorge $4.11 Billion

Investors pumped $10.75 billion of new money into stock funds in July. But most of it went to world equity funds, while U.S. stocks saw outflow of $4.11 billion.

The overall inflow was up from $4.87 billion in June, according to the Investment Company Institute, and came as the stock market drove higher to July 19 before nosing over into a nasty correction.

Investors again favored international over U.S. funds amid a weak dollar. Also, the impact of the subprime lending crunch was felt more in the U.S. than overseas.

U.S. stock fund outflow was up from an outflow of $3.32 billion in June.

World equity funds picked up $14.86 billion in July, up from $8.2 billion in June.

For the first seven months of the year, stock funds absorbed $99.54billion in new money vs. $113.34 billion in the year-earlier period.

Bond funds had an inflow of $3.65billion, a big slowdown from the $7.57 billion in June.

During July, the yield on the 10-year Treasury note fell to 4.78% from 5.03% the month before. The yield on the three-month T-bill rose to 4.85% from 4.62%.

Taxable bond funds had an inflow of $3.46 billion in July, down from $7.05 billion in June. Municipal bond funds had an inflow of $191 million in July, compared with $522million in June.

The slowdown reflects the bond market's uncertainty caused by the subprime mortgage crisis.

For the year, inflow to taxables totaled $76.66 billion, up from $17.07billion a year earlier. Munis inflow totaled $14.02 billion vs. $6.85 billion.

Inflow to hybrid funds, which invest in stocks and bonds, grew to $1.87 billion in July from $1.26 billion in June. Year to date, hybrid funds have taken a big jump over last year: $17.45 billion vs. $860 million.

Money Markets Pick Up

Money market funds had inflow of $71.14 billion in July, up from $34.77billion in June. Year to date, money market funds picked up $200.25 billion vs. $61.86 billion a year earlier.

Money funds have been moving to shorter-duration securities, amid uncertainty over the Fed's next move on interest rates.

It is still not clear whether the Fed will cut rates to calm the stock markets; the Fed recently released the minutes of its Aug. 7 meeting that seemed to indicate it might, and the discount rate was lowered.

Between June and July, net assets of mutual funds across the board fell 0.7%.

Money markets bucked the trend, with tax-free and taxable money funds showing increases of 3.5% and 3%, respectively.

Tax-free money markets started the year at $366.4 billion and grew to $406 billion by the end of July. Taxable money markets went to $2.2 trillion from $1.988 trillion.

Taxable bond funds picked up 0.2%. They ended June with $1.222trillion and finished July with $1.224 trillion. That gave them a gain from the $1.129 trillion with which they started the year.

Stock funds went from $6.545 trillion to $6.391 trillion, dropping by 2.4%.

That is up from December 2006, when stock funds finished the month with $5.911 trillion.

Hybrid funds lost 1.5% on the month and posted gains year to date. Hybrids finished July with $687.9 billion and ended June with $698.2 billion.

The gain for the year is still much larger in percentage terms; hybrids began 2007 with $653.1 billion, a 5.3% increase in total assets.

Cash levels of stock mutual funds were the same in both June and July, at 3.5% of assets. The July 2006 figure was 4.2%. Cash in just U.S. stock funds stayed at near June's level of 3.6%.

More Outflow In August

Estimated flows for August show a net outflow from stock funds, with redemptions from U.S. funds overwhelming inflow to world equity funds.

According to TrimTabs Investment Research, stock funds lost $6.45 billion overall. U.S. stock funds saw $10.99 billion leave, while their international counterparts picked up $4.54 billion.

August showed bond fund outflow of $5.05 billion vs. $6.53 billion of inflow a year ago.