March 30, 2001
Mutual Funds
Index Funds Lose Investors
As Market Breeds Doubts
By AARON LUCCHETTI
Staff Reporter of THE WALL STREET JOURNAL
As recently as the late 1990s, investors had an easy option for stashing away long-term money in the stock market. Just put it in an index fund and forget about it.
It was a simple -- and, in hindsight, rewarding -- choice. The Standard & Poor's 500-stock index rose an average 28.6% a year from 1995 through 1999, producing historically high returns for index funds, which mimic the broad stock-market benchmarks. The Vanguard 500 Index Fund became the largest mutual fund in the world, and dozens of new index funds were rolled out each year.
Recently though, investors are developing some doubts about the indexing juggernaut. New money flowing into index funds slowed dramatically in 2000 after rushing in by the billions during the previous decade. "The environment over the last five years was perfect for indexing, but I don't think it's going to work in this type of market," says Robert Levitt, a financial planner in Boca Raton, Fla.
Indeed, while investors have continued to put net new money into index funds of all types, they withdrew a net $800 million from funds tracking the S&P 500 in January and February this year. That marks the first time that S&P funds have had net withdrawals in seven years, according to fund-data company Lipper Inc.
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