NYT article- The Crowds of Internet Investors Begin to Thin
Thinhttp://www.nytimes.com/yr/mo/day/news/financial/internet-marketplace.html
By RICHARD A. OPPEL Jr.
NEW YORK -- How much more do Internet stocks have to fall
before many investors lose interest? Not much, according to the
latest mutual fund data.
Perhaps convinced that buying on the dips would always pay off,
investors continued to pour money into Internet stock funds in April and
May, even as Internet stocks dropped about 30 percent from their peak
early last month.
But that pace slowed sharply last week, as Internet funds pulled in just
$34 million in new money. They had swallowed an average of more than
$200 million a week, for a total of $1.3 billion, since the sector's high in
early April.
In all categories, stock funds drew $25.5 billion in new money in April --
usually a strong month because of contributions to Individual Retirement
Accounts -- according to data released on Thursday by the Investment
Company Institute, the fund industry trade group. But overall fund sales
have slowed considerably this month, according to fund company
officials. In fact, Trimtabs.com Investment Research estimates that
investors have actually pulled more than $3 billion out of stock funds
since the market turned down on May 14.
New investment in mutual funds has generally slowed somewhat from the
torrid pace of recent years -- in part because of the increase in online
trading of individual stocks. Now the very funds that invest in the most
popular stocks of online traders may be losing some of their luster.
Internet-stock funds took in $470 million in net new deposits in the week
ended April 14 -- the same week Internet stocks peaked -- more than
ten times the $34 million recorded in the week ended Wednesday,
according to AMG Data Services, an Arcata, Calif., research firm.
"It's drying up rapidly due to the volatile market, and more specifically,
this week's negative market action," said Robert Adler, AMG's
president.
Because so much money has piled into the funds in recent months, many
people now have paper losses, even though the funds still boast some of
the top performances of the year. In some cases, shareholders face hefty
redemption charges if they decide to bail out, encouraging them to hold
on if possible for a comeback.
"I am a little bit surprised the flows haven't turned negative already. It
seems like an awful lot of hot money," said Scott Cooley, an analyst at
Morningstar Inc., the fund researchers in Chicago. "I've got to think a lot
of people haven't made a lot of money. People have definitely missed the
bulk of the gains."
Few Internet-stock fund shareholders have invested a big part of their
wealth in these funds, one reason why more investors aren't pulling out,
said David Kugler, president of the Monument Funds Group, which runs
the Monument Internet Fund. "The average sophisticated investor says, 'I
understand the power of the Internet, and I want to put a little money in
this thing, but I don't want to have a coronary when we suffer tough
times,"' he said.
In contrast, investors began pulling money from stock funds almost
immediately after the stock market began sliding from its peak on May
13. About $3.5 billion has fled stock funds in the last two weeks,
according to Trimtabs.com, which tracks fund sales from Santa Rosa,
Calif.
"It hasn't been panicky selling," said Carl Wittnebert, director of research
at Trimtabs. "It's just been persistent." For May, new sales are estimated
at $9.7 billion, according to the firm.
A handful of fund companies continue to get the lion's share of sales.
About $3 out of every $5 in net new fund investments last month went to
Vanguard Group, Janus Capital and Fidelity Investments, according to
the Financial Research Corp., a Boston firm.
All three fund groups said sales for May are decent but have eased from
the IRA spurt in April.
Stock funds at Fidelity, owned by the FMR Corp., have had net sales of
$2.7 billion so far this month, and with three days to go will almost surely
finish down from the $4.4 billion in sales last month.
At Janus, a unit of Kansas City Southern Industries, stock funds have $3
billion in net sales for May, down from $4.8 billion in April. And
Vanguard, whose index funds have made it the best-selling group this
year, reported $3.2 billion in stock fund sales, s down from $5.2 billion
last month. |
