Fund Inflows Look Strong for Oct., Despite Volatility
Fears over the much-ballyhooed Y2K computer bug don’t seem to be driving investors away from stock mutual funds. In fact, stock fund investors’ appetite for risk seems to be growing, not shrinking, as year-end approaches, mutual fund companies report.
Despite significant market volatility in October, investors are on track to pour $22.5 billion of net new cash into stock funds this month.
If the estimates hold, this would represent only the second time in a year and a half that monthly stock fund inflows surpassed the $20-billion mark. The total also would be more than twice the net cash that stock funds received in September.
Americans invested just $9.4 billion of net new cash in stock funds in September, according to data released Thursday by Investment Co. Institute, the fund industry’s chief trade group. That figure was up modestly from $8.9 billion in August.
But Baltimore-based T. Rowe Price Associates says its stock fund flows in October are more than triple September’s level.
October inflows at Fidelity Investments and Janus Funds were also strong.
Given how volatile the stock market has been this month, “This doesn’t make any sense to me,” said Bill Dougherty, fund analyst with Boston-based consulting firm Kanon Bloch Carre. “You would think that October would have seen more outflows” from stock funds.
Just as surprising, said Dougherty, is that much of the new money appears to be heading to relatively high-risk fund categories.
Case in point: Santa Rosa-based research firm Trimtabs.com estimates that $5.7 billion has flowed into international stock funds this month. That would be up from $2 billion in September and $972 million in August, according to ICI data.
Furthermore, aggressive-growth stock funds, many of which invest in small companies, appear to have attracted $7.1 billion this month through Oct. 25, Trimtabs said. That’s nearly twice as much money as growth and income funds, which tend to invest in blue-chip stocks.
“I guess people are willing to take risks,” said Carl Wittnebert, director of research for Trimtabs. “Whether that’s a good sign or a bad one for the markets, it’s hard to say.”
Dougherty said investors may be recalling what happened at this time last year, when stocks staged a major rally after a late-summer slide. From its low, Oct. 8, 1998, to Dec. 31, the Standard & Poor’s 500-stock index surged 28.5%.
The Russell 2,000 index of small-company stocks soared even more, delivering a total return of 36.4%.
“The market went straight up,” Dougherty said. “Many investors who panicked and sold missed that.”
Year to date through September, stock fund inflows are down modestly versus 1998. Investors are much more reluctant to buy bond funds: That sector saw a net $4 billion flow out in September, ICI said. Bond fund inflows have plunged as rising interest rates have depressed bond fund share values.
Ticker Talk: Microsoft Corp. is becoming a Dow Jones industrial issue, but it has no plans to move its stock listing to the New York Stock Exchange from the Nasdaq Stock Market, Chief Executive Bill Gates said Thursday. “We’ve done very well as a Nasdaq stock. I don’t expect that we will make that change [to the NYSE],” Gates said in New York. . . . Venture capital funds invested a record $12.98 billion in a total of 1,190 companies in the third quarter, the National Venture Capital Assn. reported. Total venture funding year-to-date: $28.6 billion in 2,664 companies, up from just $5.8 billion in 1,369 companies in 1995. . . . The Chicago Stock Exchange, the nation’s largest regional stock market, will join the rush to offer after-hours trading, starting today. Its session will be 1:30 to 3:30 p.m. Pacific time.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Fund Flows Net cash inflows into stock mutual funds are down a modest 13% this year through September, compared with 1998. But net inflows into bond funds have plummeted 72%.
Net inflows: (billions) 1998 1999 Stock funds
1998
$138.6
1999
$121.1
Bond funds*
1998
57.3
1999
16.1
*taxable and tax-exempt funds Source: Investment Co. Institute
