Investors hungrier for stock funds, but finicky
NEW YORK — Investors are giving stock mutual funds another shot despite getting burned during the financial crisis, but they're being choosy.
From January through August, eight straight months, investors put more money into stock funds than they pulled out, according to the most recent data from the Investment Company Institute. They invested a net total of $106.5 billion, which is more than IBM's revenue for all of last year. It marks a sharp turnaround: Investors had yanked more from stock funds than they put in for 19 of the 20 preceding months, withdrawing a net total of $320.4 billion.
A look at which types have been winners and losers:
These funds aren't afraid to buy a stock when it's down. Value managers look for stocks in which they believe the market's expectations are too low. That may be because of an earnings setback or some other challenge. Value funds are content to wait for the price to rise.
These funds have been popular: Large-cap value stock funds have attracted $7 billion in net new investment through the first eight months of 2013, according to Morningstar.
One big attraction is the dividends that value stock funds tend to pay, says Michael Rawson, fund analyst at Morningstar. Low bond yields meant many investors turned to dividend stocks for income, particularly early in the year, Rawson says.
Companies whose revenue and earnings are rising more quickly than the rest of the market are the main staple of growth funds. Think of Amazon.com or Google.
Investors are still leery: They yanked a net $17.7 billion out of large-cap growth stock funds through August, according to Morningstar. In August alone, they withdrew a net $3.2 billion.
Growth stocks can be risky. They're often more expensive than the rest of the market, as measured by their prices relative to their earnings. During the dot-com boom, investors bid up technology and other growth stocks on expectations that the Internet would fuel tremendous earnings growth. But when the bubble burst in 2000, growth stocks in the Russell 3000 index lost 22.4 percent.
Blend stock funds invest in a mix of value and growth stocks, and they have been the most popular this year. Large-cap blend funds have attracted a net $14.9 billion, according to Morningstar.
Much of that is because of a rising interest in index mutual funds. These funds keep it simple by trying only to mimic stock indexes, rather than trying to beat them. The most popular fund in August based on net investment was Vanguard's Total Stock Market Index fun. It drew $2.3 billion and now has $272.9 billion in assets.