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Fund Investors Still Nervous

They're adding to foriegn stock fund holdings, but redeeming U.S. stock funds.
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Investors are slowing their purchases of equity funds, even as the stock market appears to be stabilizing.

Investors added a net $2.61 billion into all equity mutual funds over the five business days ended Wednesday, according to TrimTabs Investment Research of Santa Rosa, Calif. That was down from $8.04 billion the previous week.

However, the primary beneficiaries were equity funds that invest primarily in non-U.S. stocks, which took in a net $4.03 billion, up from the previous week's haul of $3.61 billion.

Funds that invest primarily in U.S. stocks actually saw money walk out the door during the week, as investors redeemed a net $1.42 billion. That was a reversal of the previous week, when investors added a net $4.44 billion.

"Individuals continue to be scared of U.S. equity markets as they have been for the last year," said Charles Biderman, TrimTabs CEO. "There's only one buyer in U.S. equity markets and that's companies.

"We saw a decent rally post-Fed intervention on the 17th," he continued, referring to the Federal Reserve's cut of the discount rate. "Then people got scared and backed out."

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Dow Jones Industrial Average

closed at 13,289.29 on Wednesday, up slightly from 13,236.13 a week earlier.

Investors reversed the trend on bond funds, too; putting in $2.26 billion, compared with the previous week, when they pulled out $2.56 billion. Hybrid funds were also on the upswing, taking in $900 million after sustaining outflows of $1.12 billion the previous week.

Investors also showed a preference for exchange-traded funds that invest in foreign stocks over those than invest in U.S. stocks. Foreign stock ETFs pulled in $419 million during the week, partially reversing the outflows of $989 million the previous week.

But domestic stock ETFs had outflows of $8.45 billion, reversing the previous week's inflows of $5.72 billion.