BOSTON — Another month of a rising stock market, another month of retreat for mutual fund investors who exited stocks and moved into bonds.
A net $11 billion was withdrawn from U.S. stock funds in August, the sixth month in a row that withdrawals exceeded deposits, industry consultant Strategic Insight said on Thursday. It was the largest monthly withdrawal total this year, despite the 2.3 percent rise in the Standard & Poor's 500 index during August.
Investors also withdrew from stock funds in June and July, although stocks rose modestly both those months. The last month that investors added new cash to stock funds was February.
It's more evidence of conservative investing trends dating to 2008, suggesting investors remain nervous about stock volatility and the economy four years after the financial crisis.
"Stock investors remain in a holding pattern, with many watching the rising stock prices with regret or disbelief, while others take some of their recent profits off the table," said Avi Nachmany, research director with New York-based Strategic Insight.
The cautious attitudes could persist a few months more, Nachmany said. However, sentiment could shift if the housing and jobs markets continue to improve, and the November elections are decided.
For now, investors continue to add cash to bond mutual funds, a more conservative investment option than stock funds with less potential for sharp gains or losses. A net $34 billion flowed into bond funds in August, the 12th month in a row that deposits have exceeded withdrawals.
Some $213 billion has flowed into bond funds through August, putting the category on track to exceed $300 billion in new cash for the full year if the trend holds up. Strategic Insight said assets in bond funds have more than doubled since the end of 2008 to more than $3 trillion, due to investors adding cash, and investment appreciation.
Here are additional details about how investors moved their money in August, according to Strategic Insight:
INTERNATIONAL STOCK FUNDS: Investors withdrew a net $400 million from funds investing primarily in foreign stocks. Year-to-date, international stock funds have attracted $33 billion in new cash.
BOND FUNDS: August's net deposits of $34 billion into bond funds came mostly from taxable bond funds. Those funds, which primarily invest in corporate bonds, attracted a net $27 billion, compared with $25 billion in July. An additional $7 billion was deposited into municipal bond funds, which invest in bonds issued by state and local governments. That's up from $5 billion in July.
MONEY-MARKET FUNDS: A net $10 billion was deposited into these funds in August. However, year-to-date, a net $140 billion has been withdrawn. Money-market mutual 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 in August deposited a net $2 billion into ETFs, which bundle together investments in a particular market index. Over the first eight months of the year, net deposits into all ETFs total $94 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.