Equity Fund Redemptions in April are Largest in 17 Years

Global investors this month pulled the most money from stock funds in any April in at least 17 years amid escalating concerns that Europe’s economy is faltering. 

Equity funds had net redemptions of $18.6 billion through April 25, according to data from EPFR Global, a research firm based in Cambridge, Massachusetts. The April withdrawals were the largest since at least 1996, the first year for which comparable data is available.

“April has thrown up a lot of things that could change the equation, especially in Europe,” Cameron Brandt, director of research at EPFR, said in a telephone interview. 

Investors have been shifting money from stock funds since the global credit crisis sent the Standard & Poor’s 500 Index (SPX) down 38 percent in 2008. In the U.S., money continues to flow to bond funds even as the benchmark index of big stocks has more than doubled since reaching a 12-year low in March 2009. 

Mutual funds that buy U.S. stocks had withdrawals of $121 billion in the 12 months ending March 31, according to Chicago- based Morningstar Inc. (MORN) which tracks the fund industry. Bond funds attracted $191 billion over the same stretch. 

Europe’s economy is struggling as spending cuts across the region undermine hiring and consumer confidence. Standard & Poor’s cut Spain’s credit rating two steps yesterday on concern the country will have to provide further fiscal support to the banking industry. A contraction of the U.K.’s economy in the first quarter put that country into its first double-dip recession since the 1970s. 

U.S. Equity Category 

Funds that buy U.S. stocks had $17 billion in redemptions through April 25, the most of any category, according to EPFR, which follows investment industry trends globally. Funds that buy western European stocks had withdrawals of $8.3 billion. Stock funds that invest in companies worldwide attracted $10 billion in the same period. 

As a percentage of industry assets, April 2000 had the highest withdrawals on record, according to EPFR’s Brandt. 

The research firm tracks traditional and alternative funds with $16 trillion in assets, including vehicles for institutions as well as individuals. 

Data collected by the Investment Company Institute, a Washington-based trade group, also show equity-fund redemptions. Investors pulled $8.7 billion from domestic stock funds in the week ended April 18 and added $8.7 billion to non-U.S. equity funds and $5.3 billion to bond funds, ICI data show. 

Investors, according to a Wall Street adage, typically sell in May, said Brian Leung, a global equity strategist at Bank of America Merrill Lynch in New York. 

“This year they decided to sell early,” Leung said in a telephone interview. 

Leung’s team, in a note published yesterday, wrote that it will be hard to generate a rally in global stocks “in the absence of big, strong inflows to equity funds.” 

Source: Bloomberg