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. Last Updated: 07/27/2016

A Slow March for U.S. Mutuals

BOSTON -- U.S. mutual fund companies say they expected weaker cash flows into U.S. stock funds in March due to nervousness over an interest rate hike and poor performance in the aggressive growth sector.

"It's a pretty lousy month, all told," Tracey Gordon, a spokeswoman for Charles Schwab & Co, said Thursday.

Net cash flows into the 927 U.S. stock funds available through the Schwab Mutual Fund Marketplace fell to $426 million in March from $428 million in February and $571 million in January, Gordon said.

March was weaker than all months in 1996 and 1997 except last July, when the stock market underwent a correction, and last December, when many investors shied away due to the negative tax consequences of year-end distributions, Gordon said.

"There were a lot of expectations in the market [in March] ... of a rate hike," she said. "There could possibly have been a belief by investors not to add additional funds."

The Federal Reserve raised interest rates last Tuesday as expected, and since then investors have been streaming back to domestic stock funds, she said.

More than $60 million poured into U.S. stock funds Tuesday and another $180 million Wednesday through Charles Schwab, Gordon said.

The industry trade group Investment Company Institute said Thursday that $18.45 billion flowed into U.S. stock funds in February, down from its preliminary estimate of $19.5 billion for the month issued March 13. It was well off the record $29.08 billion that flowed into stock funds in January.

ICI deputy chief economist Mitchell Post said the decline in February's inflow from January's record level partly reflected a seasonal pattern.

"January typically receives the largest seasonal inflows, which reflect, among other things, retirement account activity and the investment of year-end bonuses," Post said in a statement.

One company that defied the trend in March was Vanguard Group, which has been boosted by the recent performance of its index funds over most managed funds. "It's another terrific month," Vanguard principal Brian Mattes said. "It will probably be tied for our fourth-best month."

Flows into Vanguard's domestic stock funds will be about $2 billion in March, he said. That is better than every month last year except February, but nevertheless down from about $2.5 billion in February this year and a record $3.4 billion in January.