Fund Investors Unruffled Amid Pullback

Since the stock market peaked on July 16, the average U.S. diversified stock mutual fund has lost more than 8% of its value. Meanwhile, some of the nation’s biggest stock funds, such as Fidelity Magellan, Janus Twenty and American Century Ultra, have plummeted more than 10%.

But by and large, individual investors haven’t noticed--yet.

“It certainly hasn’t been fun for the last three to four weeks,” said John Rekenthaler, director of research for Chicago-based fund tracker Morningstar Inc. “But I think most investors have the mind-set that we’re probably not in a meltdown yet. So you might as well be in there.”

Added Chris Brown, a mutual fund analyst with Financial Research Corp. in Boston: “I don’t think we’ve experienced enough of a drop to shock investors--to force them to make a move out of different funds or out of different sectors.”

In the five days ended Thursday, mutual fund investors yanked a net $6.3 billion out of stock funds, according to early estimates by research firm Trimtabs.com in Santa Rosa, Calif.

That would make that stretch the biggest week for net stock fund redemptions this year, eclipsing the $5.5 billion pulled in the five days ended Feb. 12.

However, on Friday and Monday, investors turned around and invested a net new $2.6 billion into stock funds. And since the market’s peak, investors have pulled only a net $3 billion from stock funds, according to Trimtabs’ estimates. This is hardly a huge amount, analysts say, considering that the benchmark Wilshire 5,000 total stock market index has fallen more than 10% in just the last 17 trading days.

Of course, all of this could soon change should the market slide continue.

“The broad base of Americans don’t look at month-to-month returns,” Brown said. He noted that investors tend to react only after they see their funds lose money over longer periods, such as on a year-to-date or one-year basis.

Well, guess what. Year-to-date returns for many funds--especially those that invest in smaller stocks--are on the verge of slipping into negative territory.

The Lipper small-cap fund index is up only 2.1% year to date. True, this does not necessarily reflect how the average small-stock fund has performed. According to Morningstar, the average small-company stock fund is up 4.9% year to date. But the Morningstar figures reflect activity only through Monday.

And many funds commonly found in the nation’s 401(k) retirement plans are already underwater year to date. Merrill Lynch Growth, for instance, is down 3.3%, while PBHG Growth is down 2.4%.

Working in the funds’ favor, though, is the fact that in the coming weeks, year-over-year comparisons are likely to look favorable--even if mutual fund performance continues to meander. That’s because last year at this time, stocks swooned to near-bear levels.

Last year’s tumult, in fact, may have something to do with investor behavior this time around, analysts say.

“Last year at this time, we had what turned out to be a little over a 19% decline in the stock market,” says Sheldon Jacobs, editor of the No-Load Fund Investor newsletter. “But all the people who sold at or near the bottom are sorry,” he said, referring to the fact that the Dow Jones industrial average rocketed more than 40% from the start of October to the end of June.

“I guess people may be reluctant to make that same mistake,” Jacobs said.

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Stock Funds’ Summer Slide

A look at some well-known stock funds, with declines since July 16 and year-to-date returns, through Tuesday:

Biggest Stock Funds

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Total return through Tues.: Fund Category From 7/16 From Jan. 1 American Century Ultra Large growth -11.8% +2.6% Janus Large growth -10.7 +10.4 Fidelity Magellan Large blend -10.5 +5.2 Vanguard 500 Index Large blend -9.6 +5.0 Fidelity Contrafund Large blend -9.3 +4.9 Fidelity Growth & Income Large blend -9.2 -0.2 Vanguard Windsor II Large value -8.2 +3.1 Investment Co. of America Large blend -7.7 +6.0 Washington Mutual Investors Large value -6.4 +4.8 Vanguard Wellington Hybrid -5.0 +3.9

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Funds Commonly Found in 401(k) Plans

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Total return Fund Category From 7/16 Putnam New Opp. A Mid-cap growth -14.3 PBHG Growth Mid-cap growth -13.9 Janus Twenty Large growth -13.3 AIM Constellation Mid-cap growth -11.9 Neuberger Berman Guardian Large value -9.6 MFS Massachusetts Investors Large blend -9.2 Dodge & Cox Balanced Hybrid -4.3 Fidelity Div. International Foreign -4.1 Growth-and-income -7.9% fund index * Mid-cap stock fund index * -10.8 Small-cap stock fund index * -10.1 S&P; 500 index -9.6

through Tues.: Fund From Jan. 1 Putnam New Opp. A +1.3 PBHG Growth -2.4 Janus Twenty +7.5 AIM Constellation -0.3 Neuberger Berman Guardian +4.1 MFS Massachusetts Investors -1.3 Dodge & Cox Balanced +10.0 Fidelity Div. International +8.6 Growth-and-income +5.1% fund index * Mid-cap stock fund index * +3.5 Small-cap stock fund index * +2.1 S&P; 500 index +5.1

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* Lipper Inc. indexes of largest funds in each category

Sources: Bloomberg News, Lipper Inc.