MO markup shorts; all appear to be on track, can only tell in 4 days. More on liquidity: "Investors Place Less Money
In Mutual Funds This Year
By PUI-WING TAM
Staff Reporter of THE WALL STREET JOURNAL
Amid wild market volatility and disappointing mutual-fund returns, the flow
of investor money into mutual funds is continuing to slow.
In August and so far this year, many
investors have cut back the sums of money
they put into mutual funds and increased
fund withdrawals. This month, the trend isn't
reversing. Numerous fund companies report net fund sales continue to be
down compared with earlier periods.
In August, investors stuffed $9.21 billion in net new money into stock
funds, down 26% from $12.4 billion in July, according to newly released
data from the Investment Company Institute, a mutual-fund trade group.
Bond funds suffered a net outflow of $987.8 million in August, compared
with $560 million of net new money received in July. In August, investors
pulled another $937.2 million from balanced funds, which invest in both
stocks and bonds. In July, investors yanked $207.7 million from such
funds.
The stock-fund figures reflect a jump in the rate of redemptions in August
to 23.7%, up from 21.8% in July, and 20.8% the year before.
From Jan. 1 through Aug. 31, the
amount of net new money that
flowed into stock and bond funds
was down 38% compared with the
year-earlier period, according to
Financial Research Corp. in Boston.
Specifically, investors pumped
$118.7 billion into stock and bond
funds through August, down from
$191 billion in the year-earlier
period.
Mutual-fund executives attribute the
slowing flows into funds, alongside
rising redemptions, to some
investors' growing preference for
individual technology stocks over funds. The trend has been exacerbated
by weak mutual-fund returns over the past few months, as most major
indexes have lost ground and just a few technology stocks continue to
deliver stellar gains. Many other investors are believed to be cashing out
some holdings to spend their investment gains.
The malaise has spread in September. "Our flows this month aren't likely to
outpace August, most likely because of the volatility in the market," says
Rowena Itchon, a spokeswoman at mutual-fund company T. Rowe Price
Associates in Baltimore. She said though T. Rowe Price's technology fund
and large-company growth fund have attracted the most new money this
month, its international funds continued to suffer redemptions.
At Vanguard Group, Malvern, Pa., the amount of new customer money is
down slightly this month, a spokesman says. The nation's second-largest
fund firm says it has taken $2.2 billion into stock funds and $385 million
into money-market funds so far this month, while bond funds and balanced
funds faced some net redemptions. That compares with an August inflow
of $2 billion into stock funds, a $440 million haul into bond funds and a
$615 million flow into money-market funds.
The pattern is being repeated at Fidelity Investments, Boston. A
spokeswoman says investors have poured $500 million into its stock funds
this month and $1.6 billion into money-market funds. Fidelity's bond funds,
however, faced outflows. August was a stronger month, with investors
putting $1 billion into stock funds, $2.5 billion into money-market funds
and taking some money out of bond funds. As in prior months, Fidelity's
top draws have been stock funds such as Fidelity Aggressive Growth Fund
and Fidelity Growth Company Fund.
Some companies are starting to take action to counteract the sluggish
flows. Pimco Advisors, a well-known bond-fund specialist, netted $565
million in new cash so far this month, down from $860 million in August.
The firm is ramping up a campaign, dubbed the "investment paralysis"
program, to coax investors and brokers off the sidelines and into Pimco
funds. The firm is sending marketing leaflets to securities brokers and
investors, as well as raising the profile of Pimco through selected new
Internet advertising.
"If, in fact, there is a tougher environment in the marketplace now, having a
crisp identity becomes critical," says Stephen Treadway, chairman of
Pimco Funds Distributors. "In order to stand out, we want to emphasize
that we're the bond experts."
Despite the slowing flows overall, the best-selling funds in August
continued to be index portfolios, funds that focus on large-company stocks
with above-average earnings-growth potential, and some bond funds. The
top seller in August was Vanguard Short-Term Corporate Fund, a bond
portfolio, edging out longstanding favorite Vanguard 500 Index Fund, a
portfolio that tracks the big-company Standard & Poor's 500 stock index.
Pimco Low Duration Fund, Vanguard Total Stock Market Index Fund
and Alliance Premier Growth Fund rounded out the top five spots.
SMALL ASIAN COMPANIES: To capitalize on the recovery under
way in Asian markets, Eaton Vance Corp. announced the launch of an
Asian smaller-companies fund, one of a rarer breed of products in the
crowded mutual-fund marketplace. The fund, which will invest in far-flung
markets such as Pakistan, Sri Lanka and Indonesia, will be managed by
Lloyd George Management in Hong Kong.
* * *
Money-Fund Yields Rose in Week
Money-fund yields continued to climb in the latest week.
The average seven-day compound yield on taxable money-market funds
inched up to 4.82% from 4.80% in the week ended Tuesday, according to
IBC's Money Fund Report, an Ashland, Mass., newsletter. Compound
yields assume reinvestment of dividends.
The average seven-day compound yield on tax-free money funds rose to
3.07% from 2.84% in the week ended Monday. The latest yield is
equivalent to a taxable 4.80% for an investor in the 36% tax bracket and
to 5.08% for someone in the 39.6% bracket.
Assets of the 938 taxable funds fell $9.94 billion, to $1.26 trillion. Of that
figure, institutional investors withdrew about $7.01 billion. Assets of 459
tax-exempt funds fell $2.84 billion, to $190.45 billion.
The average seven-day simple yield on taxable funds rose to 4.71% from
4.69%; the average 30-day simple yield rose to 4.69% from 4.66%. The
average maturity of taxable funds' investments, which include commercial
paper (short-term corporate IOUs) and Treasury bills, remained
unchanged at 57 days.
The tax-free funds' average portfolio maturity remained at 54 days.
IBC's Money Fund Report is published by IBC Financial Data Inc., a
subsidiary of Informa Inc." |
