Analysts Foresee Tumult for Fund Industry
By James Paton
NEW YORK (Reuters) - A number of businesses have watched their prospects go from bad to worse after last week's attacks on the United States, and the mutual fund industry is no exception.
``We're close to a worst-case scenario right now, and it's probably going to stay that way for a long time,'' said Jeff Hopson, an industry analyst at A.G. Edwards & Sons.
Fund firms, already struggling amid a downturn in the stock market, now must brace for even uglier times ahead. Analysts who track fund companies are slashing their profit forecasts for the rest of the year as well as for 2002 and anticipating further cuts in jobs and expenses.
Stilwell Financial Inc. (NYSE:SV - news), parent of the Janus and Berger fund groups, T. Rowe Price Group Inc. (Nasdaq:TROW - news) and Waddell & Reed Financial Inc. (NYSE:WDR - news) are most vulnerable with a reliance on stock funds over more conservative investments such as bond funds and money market accounts, analysts said.
Their stocks have been pummeled since the market reopened on Monday after being closed for four days because of the Sept. 11 attacks on the World Trade Center and Pentagon (news - web sites). Stilwell's shares have fallen about 20 percent so far this week, while T. Rowe and Waddell are down 17 percent and 16 percent, respectively.
The average diversified stock fund has tumbled 23.3 percent in 2001, according to research firm Lipper Inc., a unit of Reuters Group Plc (RTR.L). This year could turn out to be the worst for fund investors since 1974, when the average diversified stock portfolio fell about 25 percent.
Fund investors have pulled money out of mutual funds in recent days, but industry observers say the numbers are relatively small given the sharp market declines. A net $7.8 billion streamed out of stock funds on Monday and Tuesday, according to estimates by fund flow tracker TrimTabs.com. Figures for Wednesday were not yet available.
Investors injected just $53 billion into stock funds in the first eight months of the year, compared with $259.4 billion in all of 2000, Merrill Lynch & Co Inc. (NYSE:MER - news) estimated in a research report released last week.
Yet flows aren't the real concern because fund investors, many of whom own assets through retirement accounts, tend to avoid panic selling, said Rob Sobhani, an analyst at Banc of America Securities who follows asset management firms.
``The real issue here is the market,'' Sobhani said. He has reduced his 2002 profit projections for the asset managers he covers, including Stilwell and T. Rowe, by 10 to 20 percent.
``A bad market can wipe out years of growth and sales effort,'' he said.
The fortunes of fund companies are tied closely to the zigs and zags of the market. The declines of the past year and a half have chipped away at the value of fund companies' portfolios and the fees they generate from managing money.
Some fund firms have cut jobs this year to cope. Boston-based Putnam Investments, a unit of Marsh & McLennan Cos. Inc. (NYSE:MMC - news), announced a 4 percent reduction in jobs last spring. Janus and privately held Fidelity Investments, the biggest U.S. fund company, also recently eliminated jobs.
Other fund companies, however, have fared well in difficult times. Federated Investors (NYSE:FII - news), for instance, is poised to see its profits rise this year as weary investors shift money to the company's money market funds. Still, Federated stock has slipped about 9 percent so far this week.
The pain for the entire industry may not subside for a while. Hopson, of A.G. Edwards, said he scaled back his 2001 earnings predictions for fund companies by 10 to 15 percent, citing the increased turbulence caused by the attacks.
The wounds have been particularly deep at Stilwell, whose 2001 profits are expected to decline 37 percent from 2000 levels, according to Wall Street analysts surveyed by First Call/Thomson Financial.
The market will recover eventually, giving fund companies a boost in the process, but it is uncertain when, Sobhani said. During the Gulf War (news - web sites) in 1991, investors anticipated an end to the conflict, he said.
``The difference is that investors then recognized that there was a clear ending,'' Sobhani said. ``But that's difficult to do in this scenario. The long-term health of the industry is still there, but the fear is running high right now.''
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abstract: Thanks for thinking about me...I took the weekend off from The Internet and The News...Relatives were in town, good chance to recharge, ready for a very productive week....Looks like the market is starting to snap back to 'where it belongs' <G>.
Regards,
Scott |
