Money Flows Into Funds Despite Asian Economic Troubles
Industry leaders, including Vanguard Group and Charles Schwab Corp., say cash is flowing into equities funds in the early days of January, as most investors are acting undeterred by the tumult in world markets, a fund tracking service said Monday.
At the same time, the research group Trim Tabs Financial Services Inc. of Santa Rosa, Calif., reports that investors are withdrawing cash from U.S. and international stock funds. Some of the money is being shifted to bond funds and money market funds where returns tend to be more predictable, the group says.
An estimated net $1.4 billion was pulled from stock funds in the first five business days of the month, according to Trim Tabs, which tracks fund flows. In the same period, about a net $3.1 billion was invested in bond funds.
The stock fund outflows occurred in a week when the U.S. equity market suffered its largest percentage-point decline since October 1989, and Asian markets from Indonesia to Hong Kong were hammered.
Trim Tabs declined to disclose which fund companies are reporting net outflows.
A record $29.39 billion poured into stock funds last January and that surpassed the previous high of $28.9 billion that occurred in January 1996, according to the Investment Company Institute, the industry’s trade group.
The ICI reported Monday that an estimated $18 billion was invested in stock funds in December, down from $18.1 billion in November, and an estimated $8.5 billion went into bond funds in December, down from $10.4 billion in November.
The month of December tends to be among the weakest of the year in terms of net inflows to mutual funds as investors postpone purchases because of concern about year-end taxable capital gains distributions.
The year 1997 marked a record in terms of net new investments in stock funds.
An estimated net $231.71 billion went into equity funds last year, exceeding the previous high of $222.08 billion in 1996, according to the ICI.
Charles Schwab reported that a net $520 million flowed into the 1,500 stock funds that it markets for other companies through its Mutual Fund Marketplace in the early days of January. That compares with $420 million of net inflows during all of December.
The Trim Tabs report would be alarming for the industry since January tends to be the month when funds attract the highest net inflows as the highest number of new 401(k) plans are established and U.S. fund holders reallocate their savings plans for the new year.
“It’s very possible stock fund flows will pick up before the end of the month as 401(k) assets are invested,” Wittnebert said.
So far this month, the markets are “dampening investor enthusiasm to commit new money this month to equity funds,” said Ralph Greggs, senior vice president of product development at New England Funds LP.
