'BAD-TASTING SOUP'
Not much of the january effect - here's one reason why:
Funds Expect First Jan Outflows Since '90
Saturday February 1, 7:19 am ET
By Kathie O'Donnell
BOSTON (Reuters) - Investors are expected to pull more money out of stock funds this month than they put in, which would be the first time that's happened in January since 1990, the latest data shows.
Stock funds open to U.S. investors are expected to post $8.8 billion of net outflows this month based on estimates from TrimTabs.com Investment Research Inc.
In January 1990, outflows totaled $274 million, according to the Investment Company Institute. Since 1984, when current fund categories were set, only twice -- in 1990 and 1988 -- has cash flowed out of stock funds during January, ICI said.
January's historically strong stock fund inflows have been fueled partly by workers investing year-end bonuses. With many companies cutting jobs, bonuses have shrunk, and investors with extra cash are more likely to spend it on something other than the risky stock market or accept skimpy returns from bond and money market funds, analysts said.
Peter Crane, vice president and managing editor of iMoneyNet Inc., publisher of the Money Fund Report, said on Thursday investors are always evaluating their holdings.
"I might get 1 percent on a money fund. In that case, I'd rather have a vacation."
Money-market funds have netted $36.9 billion this month through Tuesday, putting them on pace for the lowest January inflow in six years, Crane said.
"The biggest factor is that the economy is just generating less cash," he said, adding that lower interest rates also mean bond and money market funds have provided less income for investors. The average stock fund is also down. "So it's sort of self-feeding."
At the start of 2001, when money funds were yielding 6 percent and money fund assets totaled about $2 trillion, that meant about $120 billion a year, or about $10 billion a month, in income was paid out to investors. Now, with money funds yielding less than 1 percent, less than $20 billion a year is generated in income, Crane said.
'BAD-TASTING SOUP'
"You also have people that I would assume aren't even bothering to put money in a money fund," he said. "With yields below 1 percent, they'll get their check and put it in their checking account at the bank."
Don Cassidy, a senior analyst at Lipper Inc., said bond funds could continue to attract investor cash. Bond funds netted a record $132 billion last year, according to Lipper data.
For equity funds, the outlook remains "touch and go," he said. The average U.S. diversified stock fund lost 22 percent last year, Lipper said.
"It's a bad-tasting soup overall, low bonuses, people scared about their jobs," Cassidy said, adding that investors are waiting to see whether the U.S. will declare war on Iraq. "People are thinking, 'Oh boy, is another bottom coming or are we going to go lower'."
If investors do buy equity funds -- balanced funds, which invest in both stocks and bonds or value funds are the most likely candidates to receive the bulk of the cash, Cassidy said.
"It wouldn't be surprising to me to see a shop like Janus continue to see some outflows," Cassidy said. "Of course, Pimco does very well because they are bond (oriented)."
Janus Capital Group Inc.'s (NYSE:JNS - News) retail stock and bond funds had $14.2 billion of net outflows last year, second to Putnam Investments, which lost $15.7 billion, Financial Research Corp., a financial services consulting firm, said.
IMoneyNet's Crane expects bond funds to hold more appeal for investors than stock or money funds this year, he said.
"But given mutual fund flows' historical record of predicting market returns, that's not good news for the bond market," he said. |
