Fiscal cliff deal fuels cash surge into stock funds

Boston • The so-called fiscal cliff agreement that averted steep tax increases apparently helped boost investor confidence: The flow of cash into stock mutual funds during the first week of 2013 was the largest in more than 11 years.

Mutual funds investing in U.S. stocks attracted $4 billion in net deposits during the weeklong period that ended Wednesday, and funds investing primarily in foreign stocks took in about $3.5 billion, according to preliminary data from Lipper, a unit of Thomson Reuters.

The $7.5 billion total into stock funds was the largest since the week ending May 2, 2001. It marked a shift in sentiment from last year, when investors consistently withdrew more cash from stock mutual funds than they added to them.

The surge of cash into stock funds during the latest weekly period was far larger, factoring in the $10.8 billion in net deposits to stock exchange-traded funds. That was the largest flow of cash into stock ETFs since the week ended Sept. 19, 2012, Lipper said.

The Jan. 1 deal between Congress and the White House to limit income tax increases to the highest earners and delay automatic spending cuts "encouraged some investors to put their money to work in the market," Lipper analyst Tom Roseen said.

The long-delayed agreement also may have encouraged investors to get back in the market because it resulted in a more limited increase in taxes on income from stock dividends than had been feared during early stages of the negotiations. The dividend rate increased to 20 percent from 15 percent for investors in the top income bracket, and middle-income investors continue to pay 15 percent. Had no agreement been reached, dividends would have been taxed as regular income, with those in the top bracket paying 39.6 percent.

A mildly positive monthly jobs report released Jan. 4 also may have encouraged investment in stocks during the latest week, Roseen said. That day, the Standard & Poor's 500 stock index closed at its highest level in five years.

Investors deposited a net $34.2 billion into U.S. funds of all types during the week, including mutual funds and ETFs investing in bonds, as well as money-market funds.

The fund flow data released Thursday night are preliminary, based on flows for about 75 percent of mutual funds and ETFs, according to Lipper. The Investment Company Institute, an industry trade organization, is scheduled to release more complete data on Wednesday that will cover flows through the week ended Jan. 9.