US- A record $50bn (e51.3bn) was removed from US equity funds in July according to estimates released by mutual fund research company, Lipper, illustrating the extent to which investor nervousness has reached. The previous record monthly outflow was around $30bn in September last year triggered by the events of 11th September.

Weak domestic and international data in June and July is held partly responsible for the dramatic sell-off, but Lipper maintains the stock market itself may have pushed equity-fund holders to dump at a record pace.

It suggests 401k pension plan investors, fearful after receiving mid-year statements showing big losses, rushed to offload stock and this culminated in record outflows from the New York stock exchange on 24th July.

Investors were indiscrimate in their selection of equity funds to discard – “a telltale sign of panic”, says Don Cassidy, a senior research analyst at Lipper. Even those funds providing above-average downside protection were not immune to the sell off.

Balanced funds shed $3bn, and $4bn was pulled from sector funds, of which more than $1bn came from science and technology, and health/biotech sectors. Only real estate funds had a tiny net inflow of around $10m.

Diversified equity funds, popular with long-term and fairly conservative investors, took the greatest hammering losing $35.6bn in July alone. Large-cap funds lost a further 2.2%, mid-cap funds 1.6% and even the popular small-cap funds 1.8%. Growth funds saw 2.4% withdrawn and value funds 1.7%.

Beneficiaries of the big equity sell-off were bond funds and money market funds. Fixed income funds had an estimated record net inflow of $19.2bn in July in an obvious “safe haven bid” by investors. Funds investing in corporate debt rated Single-A or above took in over $900m. Inflows were predominantly retail-investor driven, with only $3.5bn going to institutional bond-fund classes, explaining the tilt towards shorter maturities.

Corporate scandals and dubious economic prospects ensured high yield bond funds suffered alongside equities. $1.75bn was drained away in July – the largest amount in the bear-market phase.

Analysts believe the worst to be over. Since 24th July the Dow Jones Industrials average index has rebounded up to about 20% and equity funds (+3.52%) have enjoyed a four-week rally, rising to their highest point since 7th March 2002.

August’s flows should, therefore, be more positive but a deluge of US economic data out this week will provide a better insight as to the future direction of the US equity-market.

This week sees July durable good orders, August consumer confidence, preliminary Q2 GDP, the university of Michigan sentiment survey, Chicago PMI and an address by Alan Greenspan.