Stock Funds See 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 individual investors are trained now to buy on dips.
The net outflow shatters the previous record set in October 1987 by nearly 50% and represents the first monthly net redemptions since September 1990.
However, retail investors appear to be returning to most of the fund categories they fled in August--with the exception of foreign stock funds--as the market has come off its recent lows.
Whether this trend will continue should the market retest its August lows--as it tried to Wednesday--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, a partner at the money management firm of Rice Hall James in San Diego.
The August fund flow figures, released Wednesday by the Investment Company Institute, the mutual fund industry’s chief trade group, capped off the worst quarter for stock fund performance in eight years.
“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, president of Advanced Capital Strategies, a financial planning firm in Cincinnati.
“This indicates that we’re not quite as far along as we thought,” he said.
Indeed, market observers say the August and September fund flow numbers confirm a long-held belief--that individual investors don’t buy on the dips; rather, they wait for the market to recover a bit before buying back into it.
While the $11.2-billion net outflow set a record in dollar terms, the figure represents just 0.4% of total mutual fund assets as of July, according to ICI officials. By comparison, the net $7.5 billion redeemed or exchanged out of stock funds after the October 1987 market crash represented 3% of total industry assets at that time.
Most individual investors, observers say, sat tight. And those who fled stock funds in August, pouring a record $51 billion into money market mutual funds, appear ready to come back in.
“People are looking for risk again,” said Carl Wittnebert, director of research for Trimtabs.com, a Santa Rosa research firm that tracks so-called fund flows. They’re looking for risk, at least, when it comes to investing in the domestic market.
Trimtabs projects a net $20.1 billion will flow into U.S. stock funds in September, based on current fund flows. 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 of this year.
The nation’s largest mutual fund companies also are reporting strong flows. Vanguard Group, for instance, projects $1.4 billion will flow into its stock funds in September. Charles Schwab, which operates one of the largest fund supermarkets--where investors can buy and sell funds managed by hundreds of different companies--reports that a net $183 million came into its stock funds in September through Tuesday, versus net outflow of $2.8 billion in August.
The money seems to be spread out fairly evenly. Trimtabs believes a net $5.5 billion for September will flow into so-called aggressive-growth portfolios, the closest proxy to small-company stock funds.
That marks a reversal from August, when ICI reports these funds experienced a net outflow of $2.6 billion.
“The flows are following performance,” Wittnebert said.
That’s probably why emerging-market funds, which plunged 28% in August, saw net outflows of $348 million that month. International funds, which invest in developed markets abroad, saw net outflows, too, of $2.2 billion.
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.
Trimtabs projects that a net $800 million will be redeemed industrywide from international funds in September, following August’s net outflow of $5 billion.
* GLOBAL CONCERNS
The U.S. stock market fell hard on deepening economic worries. D3
* MERGERS GALORE
U.S. mergers and acquisitions continued at record levels. D3
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
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 changeTobacco +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
*--*
