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Record $20.8 billion went into bond funds in July


WASHINGTON -- Investors, concerned about declining stock prices and low money-market rates, poured a record $20.8 billion into bond mutual funds in July, up 15 percent from June, the Investment Company Institute said yesterday.

Overall, mutual fund sales increased to $32 billion in July, from $29 billion in June, the institute said. The new overall figure is just shy of the record set earlier this year when the stock and bond markets were surging. In January, mutual fund sales reached $32.6 billion.

Two-thirds of July's increase came from sales of bond funds, which reached $20.8 billion, from $18 billion in June. The trend changed in August, with several mutual fund companies reporting sales declines in bond and stock funds. Bond fund sales continued to exceed stock fund sales this month.

"Investor appetite for bond funds hasn't abated," said John Woerth, a spokesman for $90 billion Vanguard Group Inc. in Valley Forge, Pa.

Stock funds lag because "there hasn't been a major improvement in the market," said John Folwell, a spokesman at $26 billion Massachusetts Financial Services in Boston.

Sales were mostly lower this month. At Fidelity Management and Research, the nation's biggest mutual fund company, stock fund sales fell 80 percent and bond fund sales dropped 50 percent from July, said Michael Hines, senior vice president for marketing.

Despite the drop, Fidelity, with $181 billion of assets, had more inquiries from investors about opening accounts than in any month since April, Mr. Hines said. "The investor feels pretty good about the long-term situation and doesn't feel too good about the shorter term," he said.

Vanguard's sales slipped 21 percent this month, to $1.1 billion from $1.4 billion, Mr. Woerth said. Massachusetts Financial's sales are about $200 million so far this month, with three business days remaining uncounted, compared with $246 million July.

Investors continued to put money into bond funds this month to take advantage of the bond market rally. Investors bought bonds as an alternative to declining money market and certificate of deposit yields, said Vanguard's Mr. Woerth. They also bought bond funds as a safer investment than stocks, he said.

Bonds rallied in July and August as the economy remained sluggish, a sign that interest rates won't rise soon. The 30-year Treasury bond now yields about 7.40 percent, down from 7.62 percent at the start of June.

In addition, investors find stock funds less appealing because the stock market rally faltered. The Dow Jones industrial average, now at 3,254, fell as low as 3,228 earlier this week, after having reached almost 3,400 at the start of the month.

Meanwhile, money market rates are so low that many investors are seeking longer-term investments. The three-month Treasury bill is yielding about 3.16 percent, down from about 3.80 in late June.

In July, the assets of all stock, bond and income mutual funds rose to $1.537 trillion, from $1.468 trillion in June, according to the Investment Company Institute, the mutual fund industry's trade association.

Net sales, which include new sales and reinvested dividends after considering redemptions, advanced to $19.1 billion in July, from $15.4 billion in June. A year earlier, net sales were $10.3 billion.

July net sales of stock funds were $6.4 billion, compared with $5.4 billion in June and $3.6 billion in July 1991. Bond and income fund net sales totaled $12.7 billion in July, up from $10 billion in June and $6.7 billion a year earlier.

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