Stock-Fund Investors Pull Record $70.7 Billion, TrimTabs Says
By Sree Vidya Bhaktavatsalam
Oct. 31 (Bloomberg) -- Investors withdrew a record $70.7 billion from U.S. stock mutual funds in October, according to data compiled by TrimTabs Investment Research, raising questions about how long they will stay out of the market.
Redemptions by individual investors and institutions jumped 26 percent from the previous high of $56 billion in September, Conrad Gann, chief operating officer of the Sausalito, California-based firm, said today in an interview.
Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York, said in a note to clients today that it can take a long time after losses for individual investors to feel comfortable buying stocks. After the 1987 stock market crash, retail stock- trading levels took four years to recover, he said.
``When the financial markets rattle `Mom and Dad Average American,' these investors pick up their cash and place it in their mattresses -- and won't come back into the capital markets until the pain of their previous losses is long forgotten,'' Hintz wrote.
Investors had stepped up their flight from stock and bond funds in mid-September after Lehman Brothers Holdings Inc. declared bankruptcy and world governments were forced to intervene to stabilize their economies. Through yesterday, the Standard & Poor's 500 Index slumped 18 percent in October, its worst month since 1987, and the MSCI World Index dropped 20 percent, the most in its 38-year history.
`` In a bear market, an investor's field of vision narrows,'' Matthew Kaufler, a fund manager at Rochester, New York-based Clover Capital Management, which has $2.6 billion in assets. ``They just want the pain to stop.''
Record Week
Fund shareholders started the month by taking $52 billion from stock and bond funds in the week ending Oct. 9, a seven-day record. In the week ending Oct. 29, they pulled $9.2 billion from stock funds and $5.87 billion from bond funds.
TrimTabs hasn't compiled a final figure for bond-fund outflows in October. Though yesterday, an estimated $29 billion had been withdrawn from fixed-income funds in the month, though Gann said the figure is preliminary and subject to revision.
Mutual-fund companies suffered withdrawals throughout the year, with Legg Mason Inc. reporting that $21 billion was removed from stock and bond funds in the third quarter, while investors at Franklin Resources Inc. took out $8.6 billion.
The average diversified U.S. stock fund declined 23 percent in value in the month through Oct. 30, according to Morningstar Inc. of Chicago. The $157.1 billion Growth Fund of America, the largest U.S. stock mutual fund, fell 19 percent and the $62.8 billion Fidelity Contrafund 17 percent in the month.
Both funds dropped 35 percent this year, 1 percentage point more than the S&P 500.
Value investors Jeremy Grantham of Grantham, Mayo, Van Otterloo & Co. and Ron Baron of Baron Capital Management LLC said last week that stocks were cheap enough to buy.
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