Investors Preferred Cash in February
___________________________________________________
Thursday March 29, 6:01 pm Eastern Time
Morningstar.com
By Dan Culloton
<<If trends continue, February and March could end up as the first time equity mutual funds have reported two consecutive months of cash outflows in more than a decade.
The Investment Company Institute (ICI) on Thursday said investors took more money out of stock funds than they put in for the first time since August 1998. Judging from the estimates of some of the largest mutual-fund families in the industry, as well as other independent organizations, equity funds will post net outflows again in March.
The last time investors redeemed more stock-fund shares than they bought for two months in a row, Saddam Hussein had dispatched tanks into Kuwait, roiling markets and spurring President George Bush the elder to bemoan the Iraqi dictator's ``naked aggression.'' In August and September of 1990 stock funds suffered outflows of nearly $3.3 billion, according the the ICI, the Washington, D.C.-based mutual- fund-industry trade group.
That's a little more than the $3 billion that left stock mutual funds in February, the ICI said. Equity-fund net cash flow fell more than 100% from January when they took in more than $25 billion, and from February of last year when technology stocks were still rocking, investors poured $53.5 billion into stock funds. Aggressive-growth and international funds reported the biggest outflows, bleeding $1.5 billion and $4.4 billion, respectively.
The Institute tried to put a good spin on the negative numbers, noting new sales of stock-fund shares dropped by 30%, but equity-fund redemptions also fell 16%. ``February's mutual-fund activity is typical of an environment of prolonged stock-price declines: Investors slow their pace of new purchases,'' the ICI said in a news release.
The industry's fund-flow numbers for the year were still positive last month, though not nearly as robust as they were at the same time last year. Investors bought a net total $21.9 billion in mutual-fund shares through the end of February, about 78% less than the more than $100 billion in fund shares they purchased in the first two months of 2000, the ICI said.
Investors put most of their new money into money-market, bond, and balanced funds that mix stocks and bonds. Money-market funds took in nearly $55 billion in net new money, while bond and stock and bond hybrid funds took in $8.8 billion and $954 million, respectively, in fresh cash last month.
Big fund families like Fidelity Investments, T. Rowe Price (Nasdaq: TROW - news), and Charles Schwab (NYSE: SCH - news) said investors continued to prefer fixed- income and money-market funds over stock vehicles in March.
Overall, Fidelity's mutual funds took in more money than they paid out in March, but money-market and bond funds claimed most of the net new money at the Boston-based firm, said spokeswoman Anne Crowley. The stock funds of the industry's largest fund family, which took in $1.1 billion last month, have reported some outflows so far in March, though Crowley would not say how much. ``By and large most of our investors stayed put or, as they added new money, they focused on bonds and money markets,'' Crowley said.
Mutual-fund investors using Charles Schwab bought a record level of money-market funds (more than $5 billion) in March though Wednesday, said company spokesman Mo Shafroth. Nearly all of the 10 categories Schwab uses to classify the stock offerings sold through its mutual- fund supermarket experienced outflows, Shafroth said. Investors with Schwab accounts sold a net $1.27 billion in equity-fund shares through Wednesday and bought $474 million in bond funds. Index stock funds took in about $16 million and balanced funds $20 million. International, sector, and growth funds were the hardest hit groups, waving goodbye to between $266 million and $382 million each through Wednesday. Shafroth noted, however, that investors actually pulled more money out of stock funds in December of last year.
Money-market and bond-fund sales also kept Baltimore-based T. Rowe Price's flow of new money positive, said spokesman Steve Norwitz. The conservative shop's more-aggressive, growth-oriented and international funds reported outflows, but its value funds took in more new money, Norwitz said. T. Rowe Price's index funds suffered heavy outflows, Norwitz said. ``The people who made a bet on the market are pulling out of the market and the people who focused on the actively managed funds are sticking with them,'' he said.
At least one fund family reported inflows across the board: The Vanguard Group expects to take in $500 million into its stock funds, $1.7 billion into its bond offerings, and $3 billion into its money markets, said spokesman John Demming.
Much has been said and written about the amount of money investors have pulled out of stock funds in recent weeks and what the trend portends for the market. Morningstar Director of Fund Analysis Russel Kinnel contends fund flows may be interesting, but they're a lousy market indicator.>> |
