Stock Fund Purchases Slow Sharply

Investors’ net purchases of stock mutual funds dropped in November to the lowest level since March, the industry’s main trade group estimated on Thursday.

Meanwhile, the main factor believed to be hurting stock fund purchases--worries over Asia’s economic mess--also helped boost bond fund purchases to the highest level in nearly four years.

The Investment Company Institute estimated that net new cash flow into stock funds totaled $13.5 billion in November, down 26% from the actual $18.2 billion net inflow in October.

If the November estimate is accurate, it would be the lowest inflow since March’s $10.3 billion. Fund purchases dropped in March as interest rates rose and stock prices sank.

The ICI said stock fund inflows have been hurt by outflows from international funds as Asian markets have plummeted.

What’s more, many investors delay fund purchases near year’s end because that is typically when funds make their annual capital gains distributions. Buying before a distribution can create a 1997 tax liability.

Even so, some investors who may have otherwise invested in domestic stock funds may be favoring a more conservative alternative, analysts say: bond funds.

An estimated $8 billion in net new cash flowed into bond funds last month, the ICI said, up from an actual $3.7 billion invested in October and the highest since $11 billion was invested in January, 1994.

Net new cash flow is new fund purchases minus redemptions and adjusted for exchanges among funds in the same family.