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Hot Market Boosts Funds

Edward Wyatt New York Times

As stock prices reached new heights in July, mutual-fund investors celebrated by adding to their investments in equity funds.

Several mutual-fund companies, including giants like Fidelity Investments and Vanguard Group, reported Wednesday that July would probably rank as the second-best month this year - and would be far better than July of last year, when a sharp drop in the stock market stopped fund flows dead in their tracks.

And the Investment Company Institute reported Wednesday that equity funds took in $16.6 billion in new money in June, down from $20.5 billion in May. The June total also fell below the institute’s estimate of $18 billion, released earlier this month, but beat last June’s intake of $14.4 billion.

Bond funds added $2.1 billion in June, compared with $2.7 billion in May. Previously the institute had estimated June’s bond intake at $2.5 billion; in June of last year, bond funds suffered net outflows of $214 million.

Most of the money flowing into mutual funds continues to head into funds that invest primarily in U.S. stocks, as it has for the last three years. But funds investing in junk bonds and overseas stock markets also fared well in the second quarter of this year.

In July, however, investors have continued to put most of their money into domestic stock funds. This month’s cash inflows are certain to exceed those of last July, which, slowed considerably by a sharp decline in stock prices, totaled only $5.7 billion.

Fidelity, a unit of FMR Corp., expects cash flows to domestic equity funds to total $2 billion in July, about double last month’s total and the best since January. The Vanguard Group is also on track to record its second-best month of the year in July, with cash flows totaling $2.8 billion, up 27 percent from June’s total but still behind the $3.4 billion recorded in January.

As bullish as mutual-fund investors have been recently, fund managers have been even more optimistic. The amount of cash on hand in the average stock fund dipped to 5.8 percent in June from 6.1 percent in May. In June of last year, just before the stock market’s July swoon, cash as a percentage of fund assets averaged 6.6 percent.

Domestic stock funds are keeping even less spare cash on hand - 5.6 percent in June, down from 5.7 percent a month earlier and 6.4 percent in June 1996.

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