Stock Funds Saw Record Net Outflow in Aug.
Nervous investors yanked more money from stock mutual funds in August than was previously thought--a record $11.2 billion--dispelling the notion that individuals are eager buyers as the market plunges.
The net outflow, which was more than twice as big as recent estimates, shattered the previous record set in October 1987 by nearly 50% in absolute dollar terms, and represented the first monthly net redemptions since September 1990.
However, as global markets have recovered somewhat in September, investors have been returning to most of the fund sectors they fled in August--with the exception of foreign funds.
Whether the new cash inflows will continue should the market head lower again remains to be seen.
“It’s encouraging, but in this kind of sloppy market, I don’t think conviction is strong in any sector,” said Thomas McDowell, partner at money manager Rice Hall James in San Diego.
The August fund flow figures, released Wednesday by the Investment Company Institute, the fund industry’s chief trade group, capped off the worst quarter for stock fund performance in eight years.
The average diversified U.S. stock fund lost 16.1% in the quarter, through Tuesday, according to fund tracker Morningstar Inc. Year-to-date, the average U.S. fund is down 2.9%.
The August outflow data, in the worst of the market decline, disappointed the fund industry because “there was a lot of hope that consumers have become more educated and learned to buy on the dips and not to sell during declines,” said Mike Chasnoff, head of Advanced Capital Strategies, a financial planning firm in Cincinnati.
“This indicates that we’re not quite as far along as we thought.”
Instead, the trends in August and September repeated fund investors’ pattern in the 1990s: Don’t buy on the dips, but rather, wait for the market to recover a bit before buying back into it.
Still, while the $11.2-billion net outflow set a record in dollar terms, it represented just 0.4% of total stock fund assets as of July. By comparison, the net $7.5 billion redeemed or exchanged out of stock funds in October 1987, as the market crashed, was 3% of stock fund assets at that time.
Most fund investors, observers note, sat tight in August. Those who did flee stock funds may have gone to money market funds, which drew a record $51 billion in net new cash that month, or to bond funds, which took in $5.8 billion.
In September, meanwhile, individuals may have poured nearly twice as much back into stock funds as they withdrew in August, according to estimates from Trimtabs.com, a Santa Rosa firm that tracks fund flows.
Trimtabs projects a net $20.1 billion flowed into U.S. stock funds in September. That’s on par with the amount that flowed into stock funds in September 1997 and is slightly greater than the monthly average of $17.2 billion that flowed into domestic equity funds between January and July.
The nation’s largest fund firms also are reporting strong flows. Vanguard Group projects $1.4 billion flowed into its stock funds in September. Charles Schwab, which operates one of the largest fund “supermarkets,” said a net $183 million came into stock funds in September, through Tuesday, versus a net outflow of $2.8 billion in August.
The inflows seem to be spread fairly evenly among domestic fund sectors. Trimtabs believes a net $5.5 billion flowed into so-called aggressive-growth portfolios in September, the closest proxy to small-company stock funds.
In August those funds experienced a net outflow of $2.6 billion.
“The flows are following performance,” said Carl Wittnebert, research director at Trimtabs, noting that small-company stocks have led blue chips as the market has attempted to recover.
That’s probably why emerging-market funds, which plunged 28% in August, saw outflows worth 2.1% of assets that month--far worse than the 0.1% of assets that U.S. growth funds lost.
International funds, which mostly invest in developed markets abroad, saw net outflows worth 1.1% of assets in August. Many of those markets suffered worse declines than the U.S.
Trimtabs projects that a net $800 million was redeemed from foreign funds in September.
Louis Navellier, manager of the Navellier Aggressive Small Cap Equity portfolio, believes investors are coming back to small caps and not to international funds because small companies have less exposure to troubled overseas markets.
* FRESH ROUT: Blue chips fell anew on deepening economic worries. D3
* MERGERS GALORE: U.S. mergers and acquisitions continued at record levels. D3
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On Wall Street, a Horrendous Quarter
U.S. stocks ended a horrendous quarter on Wednesday with another sell-off, taking the Dow Jones industrials down 237.90 points to 7,842.62. Still, the market remains above its lows of Aug. 31. But in the wake of the deepest decline since 1990--and with serious fears dogging the global economy--the question is whether the worst is over.
The Dow Has Bounced . . .
The Dow Jones industrial average, weekly closes and latest:
Wednesday: 7,842.62
. . . Foreign Markets Were Hit Hardest . . .
Quarter and year-to-date changes in key stock indexes:
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Price change: Market/index Quarter YTD U.S./Dow utilities +4.4% +12.3% Hong Kong/Hang Seng --7.7 --26.5 U.S./Nasdaq compos. --10.0 +7.9 U.S./S&P; 500 --10.3 +4.8 U.S./Dow industrials --12.4 --0.8 Japan/Nikkei-225 --15.3 --12.1 Mexico/IPC --16.7 --31.7 U.S./Russell 2,000 --20.5 --16.8 France/CAC --23.9 +6.6 Germany/DAX --24.9 +4.9 Brazil/Bovespa --31.9 --35.3
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Note: Price changes in native currencies.
. . . While a Few Stock Groups Escaped
Best-performing stock groups in the third quarter:
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3rd-qtr. Sector change Tobacco +13.4% Computer systems +11.8 Gold mining +9.2 Electric utilities +6.2 Telephone utilities +5.8 Semiconductors +4.5 Drugs +3.9 Grocery stores +3.4 Drugstores +2.5 Long-distance telephone +1.8
*--*
August Fund Cash Flows, by Category
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s August net Cash flow x new flow, in as % of Category millions assets STOCK Growth --$968 --0.1% Growth and income --514 --0.1 Equity-income --389 --0.3 Aggressive growth --2,595 --0.7 Global --1,743 --1.1 International --2,206 --1.1 Industry sector --1,638 --1.5 Emerging markets --348 --2.2 BOND Government +$3,008 +2.2% High-quality corporate +2,417 +1.8 Municipal +2,167 +0.8 Global --526 --2.0 High-yield --3,342 --2.7
*--*
Source: Investment Company Institute
