Most Mutual Fund Investors Riding Out Storm on Wall St.
Hanging tight.
That’s how most mutual fund investors appear to be dealing with the stock market’s recent turmoil, new industry data suggest.
Despite the market’s wild sell-off in April, stock fund redemptions that month were 27% below March’s level, the Investment Company Institute, the fund industry’s chief trade group, reported Wednesday.
And many fund companies say that May stock-fund cash flows--gross fund purchases minus redemptions--remained positive: Though investors are putting far less new cash into stock funds than they were earlier this year, there is no rush to yank money out.
Overall, April net new cash flow to stock funds was $33.8 billion, not far below March’s $39.4 billion and well above the $25.8 billion in April 1999, the institute said.
April inflows were boosted, as usual, by individual retirement account contributions before the April 17 tax deadline.
More surprising, even as the tech-dominated Nasdaq composite index sank 15.6% in April--dragging many stock funds down with it--stock fund redemptions fell to $89.2 billion from $121.5 billion in March.
Optimism about the “new economy”--and tech stocks--is so ingrained that it would take a much more sustained rout to shake fund investors, said Avi Nachmany, director of research at New York-based fund research firm Strategic Insight.
“Each one of us has had a wonderful experience personally, such as the grandmother sending e-mail for the first time,” he said. “That sense of enthusiasm transcends [stock] price levels. It buffers the anxiety or disappointment that in prior times” might have sent investors scurrying.
Still, many fund investors appear to be toning down their portfolio risk. Aggressive growth funds took in a net $10.5 billion in April, versus $23.5 billion in March, and cash flows to sector funds, which focus on a particular industry, dropped to $3.1 billion from $13.1 billion in March.
More conservative growth-and-income funds, by contrast, had a net inflow of $2.4 billion in April, reversing an outflow of $12.3 billion in March.
Fund managers, too, showed more caution in April: Cash holdings as a percentage of the average stock fund’s assets rose to 4.9% by the end of April from 4% at the end of March, as more managers allowed cash to build up amid the market decline.
For May, TrimTabs.com, a Santa Rosa, Calif.-based firm that tracks fund flows, projects a net inflow of $14.2 billion for stock funds, a further deceleration from the first-quarter buying surge but still somewhat surprising given the stock market’s continuing decline, analysts say.
Experts note that many investors are using “dollar cost averaging”: They’re plowing virtually the same amount into the market each month, whether by check, through bank debit or payroll deduction for a retirement account such as a 401(k).
With that strategy, an investor buys more shares of a fund (or stock) when prices are low, thus getting more potential lift when the market eventually recovers.
Among fund firms reporting positive cash flows for May:
* Janus Funds said Wednesday that its stock funds took in a net $1.3 billion through May 23, compared with $3.5 billion for all of April and $8 billion in March.
“But, given what the market’s been doing, we’re happy to be in positive range,” spokeswoman Jane Ingalls said. Janus’ stock funds took in a net $4.8 billion in April 1999 and $2.2 billion that May.
Though Janus is best known for its go-go funds, Ingalls said one of its tamer funds has attracted investor interest recently.
“The Growth & Income Fund is looking appealing to those who are a little skittish on the market,” she said. Growth & Income, whose recent holdings included Nokia, AT&T; and Citigroup, is down about 4% year-to-date, faring better than many higher-octane funds.
* Robertson Stephens said May inflows were moderately positive despite the closing of its flagship RS Emerging Growth Fund to new investors in April and despite slight outflows from aggressive vehicles such as its RS Internet Age Fund.
“Looking at the numbers, you wouldn’t know we’ve had a correction,” spokeswoman Rowena Itchon said. But, she noted, “Investors often just sit on the fences at times like this. Not necessarily withdraw, maybe just wait to invest.”
* Vanguard Group, whose index funds are popular with buy-and-hold investors, estimated its May stock fund inflows at $1.2 billion, compared with $3.5 billion in April.
* T. Rowe Price said May’s official total will be moderately positive as growth-oriented options such as Science & Technology remain more popular than “value” funds.
Spokesman Steve Norwitz said some investors may be suspicious about value-oriented funds because “last year we saw the same pattern--value stocks came back in the spring, only to fade later in the year.”
Meanwhile, fund investors overall remained downbeat on bond funds in April: The investment institute said bond funds saw net outflows of $6.8 billion, versus a $7.7-billion outflow in March.
Money market funds saw net outflows of $52.5 billion in April as many investors wrote checks on their money funds to pay tax bills.
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Still Robust
Despite the stock market’s dive in April, stock mutual fund net cash inflows for the month were higher than for any month
in 1999. Monthly
inflows, in billions:
April:
$33.8 billion
Source: Investment Company Institute
