Mutual fund purchases went from white-hot to merely hot between August and September, as some investors apparently caught a case of market “Octobophobia.”
The industry’s chief trade group Wednesday reported that stock funds attracted an all-time high of $12.1 billion in net new cash flow in August, breaking the previous record of $11.8 billion set in March.
But an informal canvassing of major fund companies indicates that September purchases have dropped, in some cases sharply.
Bond fund purchases are also said to be lower this month than last, when that category of funds attracted $12.7 billion in net new cash flow, down from a record $13.1 billion in July.
Net new cash flow measures the “fresh” investment in the funds, after accounting for redemptions and exchanges among funds in the same families.
Some fund officials said investors have pulled back this month particularly from U.S. stock funds and high-yield junk bond funds. Neal Litvack, a Fidelity Investments officer in Boston, said his firm’s surveys of customers suggest that many veteran investors “are definitely on the sidelines now,” remembering the market turmoil that has engulfed many recent Octobers. The last market crash occurred in October, 1987.
Litvack estimated that Fidelity’s overall fund purchases are down 10% this month from August.
At Valley Forge, Pa.-based Vanguard Group, another fund group popular with do-it-yourselfers, a spokesman said September cash flow is down 30% from August.
The Franklin Group in San Mateo, a major bond fund manager, said purchases of taxable bond funds are off 22% this month, while tax-free municipal bond purchases are down 12%.
Still, fund officials noted that even at lower levels, September purchases are mostly well above year-earlier levels. Net new cash flow into stock funds was just $3.5 billion in August, 1992.
The surge in stock fund purchases last month was led by unprecedented demand for international funds, many of the companies said. Those funds also continued to sell well this month.
At T. Rowe Price Associates in Baltimore, international funds accounted for 90% of the firm’s total stock fund purchases in September, a spokesman said.
At Prudential Securities’ funds in New York, spokeswoman Jessica Bibliowicz said the firm’s Pacific Growth, Global Utility and Global Genesis small-firm funds drew strong investment this month.
The investor rush into international funds began with the early-August rallies in key European markets. Fund officials say many are only beginning to take seriously the advice of experts to diversify assets globally. “I don’t think we’ve even scratched the surface yet” with demand for international funds, Bibliowicz said.
Meanwhile, cash levels in stock funds overall were 8.8% of assets in August, the funds’ trade group said, down from 9.3% in July, as managers continued to work idle cash into the market.
The Funds: What’s Hot, What’s Cold
How gross purchases of key categories of stock and bond mutual funds rose or fell in August compared to July*:
Aggressive growth: +9.7%
U.S. government bond: +5.5%
Municipal bond: +3.3%
High-yield bond: -6.5%
GNMA bond: -9.9%
* Not including reinvested dividends
Source: Investment Company Institute