Stock Funds Post Record Outflow
Stock mutual funds in September recorded their biggest net cash outflow in history, but that may have had more to do with investor inaction than reaction in the wake of the terrorist attacks, analysts said.
This month, many companies report that investors have been net buyers of stock funds again, as the market has rebounded from near three-year lows.
Stock funds’ net cash outflow totaled $29.5 billion in September, according to data reported Monday by the Investment Company Institute, the industry’s chief trade group.
That sum is the difference between new purchases of fund shares and sales by investors exiting the funds.
The September outflow dwarfed the previous record of $20.7 billion, which occurred in March amid the stock market’s spring sell-off.
But last month’s outflow--the bulk of which apparently occurred in the final two weeks of the month as trading resumed on Wall Street--amounted to 0.87% of the $3.38 trillion in assets held by stock funds at the end of August.
By contrast, during the market panic of October 1987, stock fund outflows that month totaled 3.1% of assets, ICI data show.
What’s more, the funds’ net cash outflow in September stemmed largely from a steep decline in new purchases rather than from a surge in redemptions.
Total new purchases fell 30% to $48.9 billion in September from August levels, ICI said.
By contrast, redemptions and exchanges among funds resulted in $78 billion withdrawn, up just slightly from $75 billion withdrawn in August.
The data suggest that many investors opted to do nothing in September--neither buying aggressively nor selling aggressively.
“As stock prices declined, shareholders slowed their purchases of new shares,” said John Rea, chief economist at ICI. That is consistent with fund investors’ behavior in most bear markets since World War II, he said.
Investors put less into bond funds in September as well, even though many bond funds performed well as market interest rates fell.
The month’s big winner: money market mutual funds, which took in $53 billion in new cash, up from $26.5 billion in August.
Several major fund companies say investors have returned to stock funds.
Boston-based Fidelity Investments has seen “very strong” inflows into stock funds, bond funds and money market funds this month, said spokeswoman Anne Crowley. For Fidelity’s stock funds, this would be the first month of net inflows since May if the trend holds up, she said.
Kansas City, Mo.-based American Century Investments has had “pretty strong” inflows into its stock and bond funds this month, said spokesman Brian Spano.
But investors have been measured in their risk-taking, Spano noted, as relatively conservative stock funds such as “value” and growth-and-income portfolios have sold much better than more aggressive funds.
At Charles Schwab Corp.’s mutual fund supermarket, stock funds took in a net $506 million this month through Friday, said spokesman Morrison Shafroth. That put the funds on track for a reversal from September, when a net $2.1 billion came out.
Schwab’s bond funds also are seeing positive cash flows in October, as they have throughout the year, Shafroth said.
“For a while now, investors have been reallocating based on risk tolerance and the way the stock market has been fluctuating,” he said.
At Baltimore-based T. Rowe Price Group, spokeswoman Robyn Brenza said the firm has seen “fairly strong inflows” in October into its domestic equity funds.
The family’s international stock funds, however, have had “modest outflows,” she said.
Industrywide estimates from at least one data tracker point to only modest net inflows into stock funds this month. Mutual Fund Trim Tabs, a Santa Rosa, Calif.-based newsletter, said Monday that stock and bond funds were on pace for net inflows of $2.7 billion and $6 billion, respectively.
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Fund Outflows
Stock mutual funds in September experienced a record net cash outflow. But as a percentage of total fund assets, the outflow was small compared with the October 1987 outflow.
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Net cash Pctg. of outflow total Month/year (billions) assets Sept. 2001 $29.5 0.87% March 2001 20.7 0.56 Aug. 1998 11.6 0.42 Oct. 1987 7.5 3.10 Aug. 2001 4.8 0.13
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Source: Investment Company Institute
