U.S. Investors Pour Into Foreign Stock Funds

American investors’ love affair with foreign stock mutual funds shows no sign of waning.

Investors continued to pour cash into foreign stock funds in December, while domestic equity funds saw net outflows, new data show.

The total net cash flow into all stock funds was $10.1 billion last month, down from $21 billion in November, Investment Company Institute, the fund industry’s trade group, reported Monday. Cash flow is new purchases minus redemptions.

The December drop-off was entirely because investors soured on U.S. stock funds, which had a net cash outflow of $2.2 billion last month, compared with an inflow of $9.2 billion in November.

By contrast, foreign stock funds had a net inflow of $12.3 billion last month, up from $11.8 billion in November.

The U.S. stock market stalled in December after soaring in November. But many foreign markets continued to surge in December.

For the year, foreign stock funds took in a net $104.6 billion, up 57% from their 2004 inflow. Domestic funds had a net inflow of $31.2 billion, down 72% from the 2004 inflow.

Bond mutual funds had outflows in December, but for the full year they took in much more money than in 2004. As interest rates have risen some investors may be finding bond fund yields more attractive.

Taxable bond funds, such as those that buy government bonds, had a net inflow of $26.4 billion for the year, up from $2.9 billion in 2004, the institute said.

Municipal bond funds had a net cash inflow of $5 billion last year, compared with an outflow of $13.7 billion in 2004.

Money market funds had a net inflow of $62.7 billion last year, compared with an outflow of $156.6 billion in 2004.

As of Dec. 31, total stock mutual fund assets were $4.94 trillion. Assets of bond funds and so-called hybrid funds (which often own a mix of stocks and bonds) were $1.92 trillion.

Money market fund assets were $2.04 trillion at year’s end.

-- Tom Petruno