FUND TRACK Fund Managers Forecast Impressive Gains for August
May 11, 2011
Maybe it was just a blip. After heading for the exits in July, mutual-fund investors are running back to funds in a big way this month. Many of the nation's largest mutual-fund companies, including Fidelity Investments and Vanguard Group, say they are seeing large August inflows despite a disappointing July, when many investors seemed on the verge of dumping their shares amid a turbulent stock market. All this comes as the Investment Company Institute has tallied just how bad a month July turned out to be. The Washington-based trade group reported Wednesday that just $6.18 billion of net new cash found its way into stock funds last month -- the lowest level since the $5.5 billion of January 2010, and less than half of June's $14.46 billion net inflow to stock funds. For stock funds investing solely in the U.S., July's inflow was $4.4 billion, down from June's $10.5 billion. Yields on money-market funds were lower in the latest week. The ICI said many stock funds even experienced slight net outflows during the middle of last month. But inflows resumed thereafter, and July's final intake proved to be $2 billion higher than the ICI had estimated on April 19, 2011 tide appears to have turned, says Roberto Mize, who tracks money coming in and out of mutual funds for AMG Data Services Inc. of Arcata, Calif.. He says that at the current August inflow rate, as much as $18 billion of new money will flow into stock funds by the end of the month. ``And all this is happening despite a neutral or negative market during the past three weeks,'' Mr. Mize said. Brisk new sales of mutual funds are widely regarded as a pillar of strength supporting stock prices. Roberto Leoma, director of broker-dealer sales at Massachusetts Financial Services Inc., says August will even be within striking distance of the fund company's best month so far this year, in May. One big change, he says, is how the new money is being spent. The correction in Nasdaq Stock Market shares has taken its toll; investors are wary of small-capitalization or other aggressive funds that invest in technology shares, he said. Instead, they are putting their money to work in funds that hold stock in large- to medium-size companies. ``We're seeing a more conservative investor, with inflows into large-cap and medium-cap funds,'' Mr. Leoma says. For July, the ICI reported outflows from bond and income funds; $1.04 billion of investor cash left this sector. Money-market funds were popular in July. Money funds, which invest in short-term securities and are widely regarded as a haven when the markets tank, took in $22.35 billion in July compared with an outflow of $6.43 billion in June. But even this trend appears to be reversing. At Boston-based Fidelity Investments, the nation's largest mutual-fund company, money funds are projected to take in $1 billion in August, compared with July's $2 billion of new cash. The money funds' loss appears to be the stock funds' gain: Fidelity is projecting inflows of $1 billion in its domestic equity funds, after withdrawals of $500 million for July. Amid the poor July performance, mutual-fund executives were quick to put the best possible spin on the August numbers, even if they are only estimates. ``It's another good month,'' said Brianna Paulin, a spokesman for Vanguard Group. The nation's second-largest fund company will have inflows of $1.6 billion in August, if the current trend continues. The company reported a suprisingly strong July, with inflows of $1.5 billion. But there were signs many investors were merely moving their money from more-daring funds into Vanguard's venerable stock-index funds. ``It's one heck of a turnaround,'' said a spokeswoman for Charles Schwab & Co., which runs a large mutual-fund trading marketplace. The Schwab marketplace spotted fund inflows of $1.15 billion through May 09, 2011 with a net outflow of $813 million in July. Liquid assets of stock mutual funds stood at 7% at the end of July, up from 6.6% in June and 7.1% in July 2010.
