Stock rally barely tempts fund investors: They want bonds

— -- The stock market may be roaring, but mutual fund investors are snoring. The Dow Jones industrial average has soared 9.9% since June 30, and gains like that usually attract big inflows to stock funds. Not this time. In fact, fund investors are far more interested in bonds than stocks.

Investors bought a net $2.3 billion of stock funds the week ended July 22, according to the Investment Company Institute, the funds' trade group. Net purchases for July 1 through July 22, the latest figures available: $4.1 billion. But investors remain far more interested in bonds, which have fared far better than stocks the past decade. Total purchases for bond funds from July 1 through July 22: $28.8 billion.

TrimTabs.com, which tracks fund flows, estimates that another $5.2 billion has flowed into stock funds the past five days — more than in the previous four weeks combined.

But even that figure is dwarfed by TrimTabs.com's estimate of $12.3 billion that sloshed into bond funds the past five days.

At Vanguard, the pattern was the same in July: $3.9 billion to stock funds, $7.6 billion to bonds. "It was the strongest month of the year for bond funds," says Vanguard spokesman John Woerth.

Flows to stock funds remain well below their 10-year average of $7.8 billion a month.

Market watchers often look at mutual fund flows as a contrary indicator. Typically, fund investors get in and out of the stock market late in the game. For example, investors yanked a record $72 billion from stock funds in October 2008. The Dow ended the month at 9325.01, slightly above Monday's close of 9286.56.

Similarly, record inflows to stock funds typically means it's a good time to lighten up on stocks.

If that's so, then there are no red lights flashing for stocks right now: The record high inflow to stock funds was $55 billion, in February 2000. "We're not there yet," says Conrad Gann, president of TrimTabs.com.

Other measures of investor sentiment confirm that view. The American Association of Individual Investors, for example, says 48% of its members are bullish — slightly above average, but nowhere near the danger mark. "We're not anywhere near frothy here," says AAII's president, John Markese.