Stock Fund Buying Slows From May Pace but Still Strong

Investors’ purchases of stock mutual funds have slowed in June from the heady pace of early spring, many fund companies report, although demand remains robust.

The fall-off in purchases, however, may be contributing to the stock market’s recent weakness, as fund managers have fewer new dollars to put to work.

Fidelity Investments, the largest fund firm, said Wednesday that net new cash flow into its domestic stock funds is “under $1 billion” this month, compared with more than $2 billion in May.

At the Vanguard Group, the second-biggest fund company, stock funds overall have taken in a net $1.4 billion this month, down from $1.9 billion in May.

Many smaller firms also confirmed slowing purchases. “We’re off the peak of April and May,” a spokesman for State Street Research said.

Meanwhile Wednesday, the Investment Company Institute, the funds’ chief trade group, said industrywide net new cash flow into stock funds in May was $25.2 billion, down from $26.1 billion in April.

The industry record was reached in January, when $28.9 billion flowed into stock funds.

Even with slowing purchases this month, fund companies say demand is far above that of last year. Just $8.2 billion flowed into stock funds in June 1995.

But any decline in the volume of money being thrown at the stock market may cause the recent speculative frenzy for shares to ebb further, experts say. Fund managers have been aggressive in putting new dollars to work, so much so that “cash” holdings of the average stock fund fell to 6.7% of assets in May, down from 7% in April and the lowest since 1978.

Meanwhile, investors continue to shy away from bond mutual funds. Those took in just $324 million in net new cash in May, down from $509 million in April.