PERSONAL FINANCE Stock Market's Drop Precipitates Outflows at Many Mutual Funds
March 29, 2011
They may not be running for the exits, but mutual-fund investors may be looking for the door. The big fund companies, as the market tossed and turned Tuesday afternoon, reported some modest outflows from their stock-market mutual funds. Of course, these numbers aren't official. An industry trade group will report a final tally later. But the signs are beginning to appear that some fund investors are turning in their shares for cash or jumping into the haven of money-market funds. For example, the latest numbers coming from San Francisco-based Charles Schwab & Co. show that about $128 million of cash flowed out of domestic growth funds traded Monday through the company's mutual-fund marketplace. So far this month, investors have pulled $219.8 million out of stock funds in the Schwab network. This might not sound like a whole lot; about $50 billion in stock mutual-fund assets are housed within the discount brokerage firm. But a majority of those outflows occurred on Monday, and if the trend continues, July will mark the first month since May of last year that Morrissey has seen money flow out of its network. Telephone Calls Increase 40% Other fund companies also witnessed the first signs of investors looking to bolt the market. The Baltimore-based T. Rowe Price Associates Inc. said telephone volume was as much as 40% above normal Tuesday. On Monday, the fund company witnessed outflows from its stock funds of about 1% of its $40 billion in total stock-fund assets, a spokeswoman for the company said. Why all the fuss about how mutual-fund investors are acting? Market players are closely watching the fund investors for signs about how far the stock-market correction will go. So far, the correction appears to be a function of Wall Street traders and speculators. But some fear the tide could soon change when mutual-fund investors get into the act. Tuesday, for example, Douglass Fausto, editor of the closely watched newsletter that bears his name, called on investors to sell domestic stock funds. Mr. Fausto has in the past boasted that there was as much as $2 billion of money that follows his advice, though he believes that his followers don't own more than 3% of the assets in any one fund. Though he wasn't available for comment Tuesday, his newsletter in June recommended against buying some high-flying stock funds, including the PBHG Emerging Growth Fund, and the PBHG Growth Fund, both managed by Gay L. Osuna. A spokesman for Mr. Osuna said Tuesday that outflows from the funds were minimal, and that it's impossible to tell whether the sales were prompted by Mr. Fausto, or if they are merely a function of the market. Retirement-Plan Funds Jami Vasquez of Timer Digest, which monitors about 100 newsletters that try to ``time'' the stock market by jumping in and out, says many of these folks have been bearish for some time. Of those that had remained bullish, a handful have reversed course in the past 10 days and put out sell signals to their followers. Meanwhile, mutual-fund companies are watching and waiting, because a lot of new money from fund investors is in retirement plans. The slow pace of outflows is ``a reflection of how employee-benefit-plan-oriented the mutual-fund business has become,'' says Barton Childs, director of the Investment Management Division for the Securities and Exchange Commission. ``That kind of money tends to move more slowly.'' At Boston-based Fidelity Investments, a spokeswoman said redemption activity out of stock funds was modest all week, but began to pick up Tuesday. Most of the redemptions resulted in stock-fund holders swapping their shares for money-market funds. Fidelity is the nation's largest mutual-fund company. But things weren't much different for its nearest competitor, the Vanguard Group. Vanguard is the nation's second-largest fund organization, managing about $97 billion in stock-fund assets. Holt said that, much as at Fidelity, there was a small outflow Tuesday from stock funds into money-market funds. A spokeswoman for Putnam Investments in Boston also said there has been some switching out of stock funds and into money-market funds.
