Mutual Funds Pull In Billions Stock Market Rally Fuels Buying Spree By Investors

Money poured into equity mutual funds at near-record rates in February, as the U.S. stock market rally continues to attract new investments, according to a report by the Investment Company Institute.

The industry trade group estimated a net $21 billion flowed into stock funds in February, the second-highest monthly amount on record since the ICI started tracking fund sales in the early 1960s.

Bond funds attracted $1 billion in February, down from $4.4 billion in January, the ICI estimated. Money was redeemed from municipal bond funds, while junk bond funds “appear to have experienced reduced inflows,” said John Rea, the ICI’s chief economist.

February’s sales results follow January’s when a record $28.9 billion poured into stock funds and a record $33.4 billion was invested overall in mutual funds, the ICI said.

January tends to be the top sales month of the year because it’s the time when many companies match distributions that employees make in mutual fund retirement plans. Also, January is usually the month when the highest number of new 401(k) plans are established.

“It’s only a matter of time before the U.S. stock market rally stops, and when the correction occurs, we’re not going to see the big inflows into stock funds that we’re seeing,” said Ned Riley, chief investment officer of the Private Bank at Bank of Boston. “The pace of new buying has to decelerate. A normal flow is $10 billion to $12 billion a month.”

Flows into stock funds were led in February by sales of some of the more conservatively managed U.S. stock funds and renewed investor interest in international funds, companies said.

Many of the nation’s biggest mutual fund companies, including Vanguard Group, T. Rowe Price Associates Inc. and Janus Capital Corp., said equity fund sales in February were almost as strong as January.

Vanguard said stock fund sales totaled $2.3 billion in February, matching January’s results.

“January was our top-selling month ever and February was our second best since we introduced our first fund in 1950,” said Rowena Itchon, T. Rowe Price’s spokeswoman.