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19.03.2001, 19:29

Downturn hits stock funds (Kurzartikel)

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Downturn hits stock funds
Market woes continue to erode all types of investment
March 16, 2001: 3:26 p.m. ET

NEW YORK (Reuters) - Each month for the past two-and-a-half years, since the Russian financial crisis spooked investors onto the sidelines, more money has streamed into U.S. stock funds than has spilled out.

But like all hot streaks, this run is coming to an end.

Jittery investors, demoralized by their stock market losses, yanked $6.7 billion out of U.S. stock funds in February and likely will pull out more in March, according to early estimates by fund flow tracker Trim Tabs. If that happens, it will be the industry's worst two-month period since 1990.

"In 16 years in the business, I've never seen so many unsolicited sellers," said John Valentine, manager of $500 million in assets for Valentine Capital.

Valentine, who has kept 16 percent of his fund in cash to meet possible redemptions and wait out the slump, is worried investors will not meet their retirement goals.

"One older lady told me, 'This investment was my pillow and I need more feathers in it.' I can't sleep at night," he said."I feel bad for a lot of people. They're saying, wait, my 401(k) has suddenly become a 201(k)."

Many investors indeed have seen their stock portfolios halved in the last year, as the 1990s bull market has come to a crashing halt. The Nasdaq Composite Index is down more than 60 percent from its high a year ago and the Standard & Poor's 500 Index is mired in bear market territory.

U.S. stock fund outflows have been rare, partly because Americans keep putting money into their 401(k) pension funds -- contributions that make up about three-fifths of the mutual fund industry's total inflows. The last outflow, $6.4 billion, occurred in August 1998 as financial crises in Asia and Russia spread worries among investors.

Outflows in back-to-back months are even more uncommon. In fact, if U.S. funds were to bleed assets in February and March, it would mark the first consecutive monthly outflows since Iraq invaded Kuwait more than a decade ago.

In July, August and September of 1990, when President George W. Bush's father was in the White House, investors drained a total of $4.1 billion from U.S. stock funds, according to Trim Tabs.

"The reality hurts. The pain has been so deep, for so long," noted Don Cassidy, an analyst at mutual fund research firm Lipper Inc."People had thought that a return of 30 percent a year was a birthright."

Lipper also expects to report outflows for February when it releases its data next Wednesday, Cassidy said, and sees possible outflows for March as well. Many investors still may have to sell assets to pay taxes to the government.

The last time fund managers blamed outflows on problems rooted in the United States was in 1987, when the stock market crashed. For eight straight months, from October 1987 to May 1988, money poured out of U.S. stock funds.

Tasting a sour stock market, investors today have diverted an increasing amount of cash into money markets and bank deposit accounts, according to Investment Company Institute, the fund industry trade group.

Fund managers, meanwhile, are holding on, trusting that positive flows are on the horizon. Debra McNeill said her $125 million Fremont Investment Advisors fund absorbed significant redemptions this past week.

"But we're still in there," McNeill said."We got clocked on Monday, but did well on Tuesday. It just matters what it looks like at the end of the month."

Amid the outflows, some funds have introduced redemption fees to tame investors who jump in and out of the market to take advantage of short-term share-price movements. An excess of that activity boosts a fund's transaction costs.

Putnam Investments recently started charging investors in its emerging markets fund and Asia-Pacific growth fund a 1 percent exit fee if they sell within 90 days. Fidelity has introduced a 0.75 percent fee on shares of its Mid-Cap Stock Fund bought or sold within 30 days.

Some fund managers, struggling to meet redemptions and find promising investments in a sea of battered stocks, are raising cash levels to 12 percent to 25 percent of their assets, said John Lloyd, a mutual fund analyst at Merrill Lynch.

"If a fund manager feels that the majority of stocks in his investable universe is not going to perform well, then he will likely wait in cash until better opportunities present themselves," Lloyd noted in a March 2 research report.

On average, though, growth funds kept about 5 percent of assets in cash at the end of February, while their value counterparts had cash levels of 3.5 percent, according to data from research firm Morningstar.

Cash levels on both the growth and value sides of the equation have dipped from a peak late last year as fund managers scramble to keep pace with an increasing number of redemptions, analysts said.

Of course, having too much cash on the sidelines risks alienating shareholders -- who pay fund managers fees to make well-educated investment decisions -- and losing opportunities to capitalize on stock market rallies.

"Managers aren't really earning their keep if they're picking Treasury bills," said Russ Kinnel, editor at Morningstar. "But if it's a short-term thing reflecting outflows, no one is going to hold that against them." 

Quelle: http://www.cnnfn.com

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