Stock, Bond Mutual Fund Buying on Upswing in May

Investors are stepping up their purchases of U.S. stock and bond mutual funds after a slowdown tied to concerns about rising interest rates, fund companies said.

An estimated $19.3 billion was invested in stock funds in May, according to Trim Tabs Financial Services Inc., an investment advisory firm in Santa Rosa, Calif.

That would be up about 22% from April, when a net $15.74 billion was invested in equity funds, according to the Investment Company Institute. The increase in stock fund buying corresponds with a surging U.S. equities market. The Dow Jones industrial average, Standard & Poor’s 500 index and Russell 2,000 index hit record highs this week.

“Only January stands ahead of May in terms of flows to our domestic stock funds,” said Gavin Quill, marketing vice president at Scudder, Stevens & Clark Inc. in Boston.

Fund companies also reported a big jump in taxable bond fund buying in May after the Federal Reserve Board opted against raising interest rates at a meeting earlier this month.

Vanguard Group, America’s second-biggest fund group, said net inflows to its taxable bond funds were about $290 million with a couple of days left in May, or more than five times higher than April’s inflows. T. Rowe Price Associates Inc., Janus Capital Corp., New England Funds and John Hancock Funds also reported gains in bond fund net inflows.

“The U.S. stock market has had such a great run that investors are looking for a substitute for equity returns and that’s leading them to junk bond funds and other high-yielding bond funds,” said Ralph Greggs, vice president in product development at New England Funds.

The ICI reported Thursday that bond funds attracted a net $786.1 million in April, following an outflow of $2.01 billion in March.

As for stock funds, there were higher inflows to “aggressive growth” funds, a trend that started in mid-April, said Charles Biderman, head of Trim Tabs Financial. It is the first sustained period of inflows to these funds since early last summer, he said.

Investors also are buying an “above average” level of global stock funds, Biderman said. About $5 billion was invested in these funds in May, compared with monthly inflows of less than $2 billion earlier in the year, he said.

Denver-based Janus said its top-selling funds in May were its Worldwide and Overseas funds. Baltimore-based T. Rowe Price also reported that its International Stock fund was one of its best-selling funds.

Overall, stock fund managers are holding more cash in the accounts they oversee than earlier in the year, the ICI reported. The average stock fund allocated 6.3% of its assets to cash at the end of April, compared with 6% at the end of March.

The assets of the mutual fund industry totaled about $3.73 trillion at the end of April, up from $3.67 trillion at the end of March, according to the ICI.