Investors Drew Out More From Mutual Funds

Investors Drew Out More From Mutual Funds 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TrimTabs Investment Research said Thursday that about $12.1 billion was withdrawn from stock-based mutual funds in the week ended Dec. 3.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.

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,"

There had actually been an inflow of $6.8 billion last week.

Comment -- The stock market traditionally falls throughout December after the Thanksgiving Holiday - perhaps due to tax loss selling.