Investors pull $31.8B out of stock funds

Last week's flow of cash back into funds reverses and nervous investors pull billions out of stock, bond, and hybrid funds after Dow hits a 5 1/2-year low.

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By Catherine Clifford, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Jittery investors began taking money out of stock-based mutual funds again this week, after a brief letup last week.

Investors pulled $31.8 billion out of equity-based mutual funds during the week ended Nov. 12, compared with an inflow of $2.2 billion the prior week, according to TrimTabs Investment Research.

Before last week, equity-based mutual funds had not seen net inflows since the week ended July 23.

This week, investors took $21.3 billion out of funds that invest primarily in United States-based stocks, after putting in a total of $2.3 billion last week.

One analyst said that investors have started pulling money out of stock-based funds because they are afraid of losing more than they have already lost. The Dow hit a 5 1/2-year low during the trading session Thursday.

"The fear gets to them that it will go down even more," said Donald Selkin, chief market strategist at National Securities. "The pain gets to them. They say they want out."

Instead, Selkin said that investors are moving their assets to very low-yielding money market funds, thinking that at least they will be able to preserve the principal of their investment.

Investors look to hold on to cash in times of uncertainty. "People are fearful of the future and possibly of unemployment," said Douglas Roberts, chief investment strategist at ChannelCapitalResearch.com and author of Follow the Fed to Investment Success. As investors grow increasingly fearful, "they are squirreling it away, building up a reserve fund of cash," said Roberts.

Based on economic downturns in 1987 and 2001, Roberts said it could be a while before investors start dumping money back into stock market-based mutual funds. "It is going to be a long while before you see major inflows," said Roberts.

Funds that focus on non-U.S. stocks saw their outflows accelerate in the week ended Nov. 12, with $10.5 billion removed, versus $140 million taken out the previous week, according to the report.

Bond-based funds also saw the flow of cash reverse, with investors pulling $6.3 billion out last week, after putting in $518 million a week earlier.

Hybrid funds, which try to strike a balance between stocks and bonds, also lost cash in the recent week. Investors took $2.2 billion out of hybrid funds this week; they put in $184 million the previous week.

Meanwhile exchange-traded funds (ETFs), unmanaged bundles of stocks that trade as a single unit on normal exchanges, were mixed.

Investors poured $3.9 billion into ETFs that focus on U.S. stocks this week, versus $885 million a week earlier.

In times of economic turmoil, investors pick ETFs because "people think that it is less risky than picking individual stocks," said Selkin.

But interest in ETFs that focus on non-U.S. stocks waned: Investors removed $107 million from these ETFs, after putting in $2.05 billion last week.  To top of page

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