Markets Cut Into Record Fund Flows

February 20, 2001 ( - Record inflows of cash to equity funds last year were not enough to overcome the market slump, as total equity fund assets dipped 2%, according to a new report.

Equity fund assets actually declined $80 billion, despite a record $309 billion in net new cash inflow, according to the Investment Company Institute (ICI).  Across all categories net new mutual fund investment last year totaled $388 billion, however net mutual fund assets rose just $121 billion.

Assets in bond funds were about unchanged at $809 billion, while hybrid funds declined 8%.

Returns Erode New Cash

The record flow into equity funds was up 64% from 1999.  The return on domestic equity funds averaged minus 4%, according to the report while the average return on foreign funds was minus 12%. Inflows averaged $28 billion/month for the first six months of the year, but slowed to $16 billion/month as the markets turned downward. 

Assets in international/global equity funds fell 7% to $542 billion as investors chipped in a net $50 billion of new investment.  The new money outpaced the previous record $47.5 billion inflow set in 1996.

Reversal of Fortune 

Bond funds offered a mirror image, as stronger returns were not enough to overcome an average outflow of $7 billion/month during the first half of the year.  The total number of bond funds declined to 2,222 from 2, 261 in 1999.  It was the first time since 1994 that the number of taxable bond funds declined.

The decline in hybrid funds was attributed to net fund outflows, which totaled $32 billion over the course of the year.  As with bonds, the outflow in the funds that invest in stocks and bonds was heaviest in the first half of the year.  Outflows slowed significantly once interest rates stabilized, and fund returns strengthened.

“Mutual Fund Assets and Flows in 2000” from the Investment Company Institute (ICI) is on line at .