Hi Jack, I've also been caught in a "redemption spiral" with a mutual fund. Am. Century's Vista Fund went through a similar situation over the last two years. After having a pretty good run-up a few years back, this midcap fund fell asleep. With the rest of the market leaping upwards soon TWCVX's sleep was loaded with nightmares.
If you recall, as the S&P 500 was soaring, the Russel 2000 stalled. Then last year when the markets declined, the R-2000 took it on the chin to the tune of about 25% or maybe even 30% while the S&P500 and other large cap indexes fell about 10% or so. This just killed TWCVX.
If I remember right, TWCVX's assets peaked at about $1.8 Billion but fell to around $800 Million because of redemptions and contraction of underlying value. The worse the underlying value, the more the redemptions!
Now for the better news! Since the beginning of this year TWCVX has outperformed its larger cap siblings. I doubt that there has been much new money flowing in yet, as investors are slow to respond to such news. It will have to do well enough to show up in several of the magazines as a quarterly and annual "winner" before that happens.
Yes, redemption spirals can and do happen. It's the "boogie man" of the mutual fund industry. The question has always been "How much pain can the mutual fund investor endure?" When that pain threshold is reached, it's like a fire in a wooden movie theater - everyone bolts for the few doors. The movie goes from being a comedy to a tragedy in seconds.
AIM knows that its easy to be lulled into complacency while the good times are on track. It also knows that panics happen. I listen to people who I usually consider intelligent and well informed talk about what they are going to do to prepare for the "Millennium" and realize that "well informed" still means it's an opinion poll! Could the YTWOK situation deteriorate into a redemption spiral with mutual funds? Panics have happened for lesser reasons. Should it? No. Will it? Probably not. But that's what AIM's all about - hedging our investments against panics and other market aberrations.
In my own personal time as an investor, I've seen the '69-'71 illogical BEAR, the '72-'74 more logical BEAR, the '80-'82 sleepy BEAR, the '87 panic BEAR, the '90 interest rate - Sadam BEAR, the '93-'95 IPO BEAR, and the '98 small cap BEAR. I didn't have any Cash Reserve in the first two, had inadequate Cash in the third and benefitted greatly in the last four by having plenty of cash on hand to buy up what everyone else was desperate to expunge from their possession!
Now you know why my motto reads:
BUY FROM THE SCARED, SELL TO THE GREEDY! :-}
Best regards, Tom |
