U.S. Mutual Fund Withdrawals a Record as Investors Choose Banks
By Sree Vidya Bhaktavatsalam
Oct. 9 (Bloomberg) -- Investors pulled a record $72 billion from U.S.-managed stock and bond mutual funds in September, seeking the safety of government-insured bank deposits as the financial crisis worsened.
Shareholders took $43.5 billion from stock funds last month and $28.8 billion from bond funds, according to data compiled by TrimTabs Investment Research in Sausalito, California. The exodus continued in the first week of October, with an additional $49.3 billion of outflows.
``People are scared,'' Conrad Gann, TrimTabs' chief operating officer, said in an interview. ``This market is different from what we've seen before.''
The five largest diversified U.S. stock fund managers, including Fidelity Investments and Vanguard Group Inc., posted an average 28 percent loss this year through Oct. 6, 2 percentage points more than the Standard & Poor's 500 Index, according to data compiled by Morningstar Inc. Investors deposited $185.5 billion into savings and checking accounts last month through Sept. 22, TrimTabs data show.
`Backfired'
``A lot of our favorite stock funds had financial bets that hurt heavily,'' said John Coumarianos, a stock analyst with Chicago-based Morningstar. ``Others were heavily weighted in international stocks to boost returns, a move that backfired.''
Boston-based Fidelity's U.S. stock funds lost an average of 32 percent, the most among the group, Morningstar said. The $29 billion Magellan Fund has plunged 44 percent this year through yesterday, the worst performer among actively managed U.S. stock funds with assets of more than $20 billion, according to Bloomberg data.
``Nine months is a short time to assess properly a fund's performance,'' Fidelity spokeswoman Sophie Launay said in an e- mail. ``This is even more relevant in the type of market environment we have seen so far this year, when the market's higher volatility may cause some long-term investors overwrought with fear to make rash decisions that alter a well diversified portfolio.''
At American Funds, run by Los Angeles-based Capital Group, the average U.S. stock fund declined 28 percent this year. Growth Fund of America, the largest U.S. mutual fund with $179 billion in assets on Aug. 31, fell 33 percent, lagging behind 63 percent of its peers, Bloomberg data show.
Vanguard, Franklin
Stock funds managed by Vanguard, based in Valley Forge, Pennsylvania, and Baltimore's T. Rowe Price Group Inc. fell an average of 27 percent. At Franklin Resources Inc. in San Mateo, California, stock funds dropped 28 percent.
Investors pulled a net $72 billion from stock funds this year through August, representing 1.3 percent of assets, according to Brian Reid, chief economist at Investment Company Institute, a Washington, D.C.-based mutual-fund industry organization. The group's figures for September will be available later this month.
The S&P 500 fell 8.9 percent in September including reinvested dividends, the worst one-month performance in six years. The index fell 33 percent this year through yesterday, the biggest year-to-date plunge since 1974.
Bond mutual funds have fallen 4.5 percent this year, Morningstar data show, as investors have shunned all but the safest government-backed debt.
The credit crisis that began last year with the collapse of the subprime-mortgage market drove companies such as Lehman Brothers Holdings Inc. into bankruptcy in September and led the U.S. government to enact a $700 billion financial rescue plan.
Reserve Loss
The Reserve Primary Fund last month became the first money- market fund in 14 years to fall below $1 a share, known as breaking the buck. The decline resulted from losses on short- term debt issued by Lehman and triggered a run on money funds.
The Treasury has started an insurance program that protects investors against losses on money deposited with participating funds. Investment companies with more than 95 percent of money- market fund assets have signed up.
Investors put $49.4 billion into money-market mutual funds in the week ended Oct. 7, according to data compiled by IMoneyNet Inc., of Westborough, Massachusetts.
Vanguard spokeswoman Rebecca Cohen said some investors moved money from stock and bond funds into the firm's money- market funds, though she called it only a ``modest portion of our investor base.''
Investors might have been driven toward banks by an extra measure of protection from the Federal Deposit Insurance Corporation, which announced last month that it would raise its bank deposit insurance to $250,000 from $100,000.
To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.
Last Updated: October 9, 2008 14:47 EDT |
