Stock Mutual Fund Purchases Slowing
Purchases of U.S. stock mutual funds are slowing from the record pace of the first four months of 1996, as fewer investors put money into retirement accounts after the April 15 tax deadline, some large fund companies said Monday.
“We’re expecting fund [purchases] to be down 10% to 15% this month from April’s level,” said Tim Pitts, executive at OppenheimerFunds Inc. in New York.
“Fund inflows will be lower in May if they follow well-established historical trends,” said Brian Mattes, a spokesman for giant Vanguard Group.
Purchases almost always get a lift in the first 3 1/2 months of the year from tax-related investing by individual investors. Individuals by law must fund annual individual retirement account contributions for the previous year by the April 15 tax deadline.
Mutual fund purchases for retirement accounts have helped push this year’s stock fund purchases to lofty levels. Net stock fund purchases were a record $71.3 billion in the first three months of 1996, or three times more than was invested in the first quarter of 95.
The record-setting pace has in turn helped fuel this year’s market rally. Now, some Wall Street analysts are warning that a reduction in new fund share purchases could take the steam out of the rally--or worse.
Byron Wien, chief investment strategist at Morgan Stanley & Co., told clients last week that the Dow Jones industrial average may be headed for a 1,000-point decline, or about 20%. A slowdown in stock fund purchases would accelerate any market slump, Wien said.
Historically, stock fund purchases are almost always lower in May than April, according to the Investment Company Institute, the mutual fund industry’s trade group.
Over the last six years, stock fund purchases were 19.4% lower in May than April on average, according to a report from the ICI. In April 1995, net purchases of stock funds totaled $10.2 billion, then declined 14% in May to $8.8 billion.
However, the stock market doesn’t depend completely on fund inflows. Foreign investors and corporations themselves also are important sources of demand for stock. Analysts note that the market rocketed for most of last year, when fund purchases were far below this year’s levels.
