January is normally a month when U.S. stock mutual funds generate strong net sales, but early data shows a rare outflow is possible as the stock market's rocky start this year dampens enthusiasm.

According to TrimTabs Investment Research (search), a fund-tracking firm based in Santa Rosa, Calif., $3 billion could leave the funds this month, based on a projection of data collected through Jan. 12.

"If it continues at that pace for the full month, it will be the second time in 15 years that that has happened," said Carl Wittnebert, research director at TrimTabs.

January 2003 is the only other recent instance of a net outflow occurring in the first month of the year. That year, with many investors on the sidelines anticipating the U.S. invasion of Iraq that would occur two months later, the funds saw a tiny outflow. About $371 million was withdrawn, according to the Investment Company Institute (search), a trade group that collects sales data from most of the fund industry.

TrimTabs and other research companies compare fund assets and market activity to estimate flows.

January is normally a strong month for fund flows, with contributions to retirement accounts often scheduled for the beginning of the year.

In January 2004, there was a large net inflow of around $44 billion, according to the ICI.

Wittnebert noted that U.S.-registered funds investing in the domestic stock market are faring worse than the overall number suggests. The domestic funds are on track for a $6.8 billion outflow this month while U.S.-based funds investing in foreign markets are generating inflows at a $3.8 billion monthly rate.

For December, TrimTabs estimated the stock funds overall had inflows of $11.9 billion, with funds investing in foreign markets capturing a big portion of the activity. According to the TrimTabs estimates, a net $6.8 billion went into domestic funds and $5.1 billion into international funds last month.

According to Lipper Inc., a research and data firm owned by Reuters Group Plc (RTRSY), the average U.S. diversified stock fund (search) is down 3.5 percent so far in 2005, based on data through Jan. 13. World equity funds are down 2.5 percent.

Lipper's performance data through Jan. 13 also showed funds that invest in the smallest U.S. companies lagging those that focus on mid-sized and large companies. The small-cap funds (search) had been on an extended winning streak until just recently.