December 28, 2000
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Stock Funds See 54% Drop
In New Cash for November
By AARON LUCCHETTI
Staff Reporter of THE WALL STREET JOURNAL
New cash flowing into stock mutual funds dropped 54% in November -- the biggest monthly decline in nearly two years -- as investors, stung by falling stock prices, started voting with their wallets.
Investors put $8.82 billion of net new money into stock funds during the turbulent month of November, down from $19.16 billion in October and $18.53 billion in the year-earlier period, according to a report published by the Investment Company Institute, the mutual-fund-industry trade group.
The decline in new stock-fund money was the steepest since February 1999, when the market was still recovering from the global financial crisis. In that month, investors put only $767 million into stock funds. February 1999 was also the last time before November that stock funds attracted less than $9 billion in net new money.
The preference for safety was underscored by investors' growing attraction to money-market funds, conservative vehicles that gain about 5% or 6% a year regardless of gyrations in the stock market. That is especially appealing this year with the average stock fund down 5.8% through Tuesday, according to Morningstar Inc., the Chicago fund tracker. In November, for the second month in a row, investors stuffed more money into the cash-like funds than they put into stock portfolios. The final figure came out to $56.19 billion, more than double October's $26 billion total and the highest intake for money-market funds since January 1999.
Stock-fund managers have continued to grow more cautious as well, raising their average cash allocation to 6.5% in November, up from 6% in October and 4% earlier this year, according to the ICI.
Indeed, enthusiasm for the stock market appears to be fading fast in December, too. "We're ending the year on a low-key note," says Steve Norwitz, a spokesman for T. Rowe Price Associates Inc., a Baltimore fund firm. In both November and this month, the pace of new money coming into the company's stock funds has slowed to a crawl, he says. For December, the firm expects the figures to end the month flat, meaning that no net new money will have come into the stock funds.
Another interesting sign: Technology funds and growth portfolios that attracted new assets earlier this year despite slipping performance have also ceased to attract net new cash at T. Rowe Price, Mr. Norwitz says. The best-selling funds this month look to be those that are weathering the difficult market of 2000, including T. Rowe Price Financial Services Fund and Health Sciences Fund, he adds.
Other fund firms, including Fidelity Investments, Boston, and AIM Management, Houston, say stock-fund investors are putting less money into their portfolios in December than in previous months. Vanguard Group, Malvern, Pa., estimates that new money flowing into its stock funds will drop 55% in December, to about $543 million, from last month. That follows a 40% drop in November to $1.2 billion from $2 billion in October.
December is traditionally one of the slowest months of the year for mutual-fund sales, but the last month of 1999 was the second-best month of the year as investors chased the rocketing stock market. That will make year-over-year comparisons tougher for the current month.
Nevertheless, industry officials say this month will be a weak one no matter what the comparison.
"Money moving to stock funds has "definitely slowed down," says Neil Bathon, president of Financial Research Corp., a Boston consulting firm that tracks fund assets. Earlier this year, investors were hoping that fast-growing companies and technology shares would bounce back from their quick, sharp decline. But with the latest slide since November, more investors are running for the sidelines. "There was hopefulness" that technology would bounce back toward the end of this year, "but I think we're past that now," said Mr. Bathon.
Fidelity Investments, the largest mutual-fund company in the U.S., says most of the new assets coming into its funds this month have been going to money-market and bond funds. New money into stock funds has slowed to "several hundred million" dollars so far this month, down from about $1.1 billion that flowed into Fidelity stock funds in November, a spokeswoman said. And two of the top-selling funds so far this month were more conservative offerings, Fidelity Dividend Growth Fund and Fidelity Asset Manager: Income. "There's renewed interest" in funds that were previously out of favor, she added.
Bond funds and balanced funds are also showing some signs of life. At Vanguard, balanced funds, which hold both stocks and bonds, attracted net new money in November and December for the first time in at least 12 months, according to a spokesman. Bond funds at Vanguard were set to attract about $1 billion in December, the highest total since August.
Municipal bond funds, meanwhile, pulled in $34 million of net new cash in November, as solid year-to-date performance helped stem the long tide of money flowing out of the sector.
One area out of favor and staying that way is international funds. Stock funds that invest abroad lost $2.88 billion to investor desertions in November, up from $206 million in October, according to the ICI. Money flowing into growth funds and aggressive-growth funds also slowed in November, while more money flowed into growth and income funds.
At Janus Capital a spokeswoman declined to comment on the firm's mutual-fund flows, citing a new policy of waiting until the end of the month to discuss flows so that all assets can be analyzed. In recent months, the highflying firm known for its expertise in picking fast-growing companies has suffered minor investor defections as its performance has slipped in the difficult stock-market environment.
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