Investors drain $12B from mutual funds
Investment research firm says money flowed out of both stock and bond based mutual funds last week.
NEW YORK (CNNMoney.com) -- Money flowed out of mutual funds last week, erasing a spike in deposits from the week before, as market volatility continued to undermine investors' confidence.
TrimTabs Investment Research said Thursday that about $12.1 billion was withdrawn from stock-based mutual funds in the week ended Dec. 3. The week before, investors had put $10.4 billion into these funds.
The bulk of the exodus happened on Monday, with modest inflows occurring on the remaining days, according to Vincent Deluard, a TrimTrabs analyst. Investors pulled out $16 billion on Monday as the Dow Jones Industrial Average dropped 680 points or 7.7%.
On Monday, The National Bureau of Economic Research made official what most Americans already believed about the state of the economy - that the U.S. has been in a recession since December 2007.
"Mutual fund money is performance following," Deluard said. Investors tend to pump money into mutual funds when the market advances, "when the market goes down they take their money out," he said.
To that end, the $10.4 billion inflow that occurred during the previous week corresponded with a rare 5-day rally on Wall Street. It was only the second time in 17 weeks that money had flowed into mutual funds.
In addition to the drainage of stock-based mutual funds, bond funds had an outflow of $6.8 billion, versus an inflow of $7.4 billion the week before.
The flight from bond funds was the "most striking feature" of this week's report, Deluard said.
"People normally sell equities in a bear market and buy bonds because they are supposed to be safe and that was the case up until September," he said.
But now investors are cashing out of both stock and bond funds, reflecting the market's "extreme risk aversion," Deluard said.
Mutual funds that invest primarily in U.S. stocks posted an outflow of $8.3 billion, after gaining $6.8 billion the week before. Funds that invest in overseas stocks shed $3.8 billion compared with $3.6 billion that came in during the previous week.
Exchange-traded funds, or ETFs, that invest in U.S. stocks posted an inflow of $920 million, compared with an inflow of $4.3 billion the previous week. ETFs of non-U.S. stocks had an inflow $643 million, compared with inflow of $1.5 billion in the previous week. 
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