Investors worried about the risks inherent in the market’s dramatic volatility over recent weeks and months might do well to pay attention to fund flows and to put their own money where the flows are going and staying.

That’s the word from S&P Equity Research analyst Jim Corridore, who just ran the numbers and analyzed both the sources of volatility and where the money has been going.

 “What we’re finding is that more and more, funds are flowing out of large cap and mid-cap into equity income funds that feature stable dividend-paying companies,” Corridore said in an interview with On Wall Street.

Corridore said much of the current volatility in equity markets is being caused by electronic trading, but he adds, “Another reason for the extreme volatility is uncertainty about where we are in the economic cycle.”

Each new release of data suggesting either a weaker economy or a strengthening one, he explains, leads to quick reversals in flows into or out of cyclical stocks.

Given such a market environment, he said he and his team of analysts looked for five-star ranked funds in the domestic income space that are open to new investors and with assets under management in excess of $2 million. 

They found a few top performers where investors tired of all the volatility might park their cash with some degree of comfort. All are equity income funds.

“It makes sense that these funds would do well in such a period,” he said, adding, “Dividend-paying companies have a steady, stable free-cash-generating operation. And once a company decides to start paying a dividend, investors expect it to continue and there is a significant penalty if it is halted, so you can pretty much count on the dividend.”

The two funds selected by Corridore include:

-- The Columbia Dividend Income Fund (GSFTX), with a net expense of 0.80%, holds among its top 10 holdings Exxon Mobil, Philip Morris, AT&T, IBM, Chevron, Pfizer and Merck.  Its one-year total return through Aug. 12 of -4.28, while negative, bested the category’s average of -6.93.

-- The Vanguard Dividend Growth fund (VDIGX), cheap at an expense ratio of 0.34%, had a total return through August 12 of -1.87, significantly outperforming its peer average of -4.97% for the same period. This fund’s top 10 holdings also include Exxon, Pfizer, and IBM, as well as Pepsico.