Stock Funds See July Net Outflow

Stock mutual funds had a net cash outflow in July for the first time since March, as global markets’ summer slide caused more investors to pull away from equities.

Meanwhile, investors were net buyers of bond mutual funds, whose returns are mostly positive this year as falling interest rates boost the value of older bonds.

Investors withdrew $1.2 billion more than they put into equity funds last month, the Investment Company Institute, the industry’s main trade group, said Thursday.

The July outflow was relatively small considering stock funds’ $3.6-trillion asset base but was only the fourth monthly outflow in 11 years. Two of the other three occurred earlier this year: In March, as key market indexes dived, stock funds were rocked by a record outflow of $20.6 billion, following a $3.3-billion outflow in February.

Fund industry net cash flows are gross purchases minus redemptions.

Stock funds could be taking another hit this month: August is on pace for a $7-billion outflow, according to an estimate Wednesday from Santa Rosa, Calif.-based data tracker TrimTabs.com Investment Research.

Foreign stock funds appeared to cause investors the most anguish in July. Investors pulled a net $3.6 billion from foreign equity funds in the month, ICI said. Domestic funds had a net inflow of $2.4 billion.

As stocks’ performance continues to wane, more investors are turning to bonds.

Taxable bond funds (including Treasury funds and corporate funds) took in a net $7 billion last month, and municipal bond funds reaped $2.3 billion in net cash inflows.

“Investors clearly are going after the greater certainty of return of principal--and at least some kind of total return--that comes with fixed income,� said Bob Adler, president of AMG Data Services in Arcata, Calif., which also tracks the fund industry.

Many bond funds are showing “total� returns (that is, interest earned plus or minus any change in principal value) of 4% to 8% year-to-date. Bond funds’ principal values rise as market interest rates fall.

By contrast, the average blue-chip stock is down 14.5% this year.

The safety of cash also drew investors last month. Retail money market funds took in a net$13.2 billion, ICI said.

Still, even after July’s outflow, stock funds have a net inflow of $48 billion year-to-date, ICI said. Conservative stock funds have continued to attract money while investors have shied away from slumping aggressive-growth and technology funds.