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Investors are returning to equity-based mutual funds following their September flight to safety, executives for industry groups and insurer-sponsored funds say. Spurring the return is a belief that the economy will soon start to recover.

Although executives in the industry agree the disastrous events of Sept. 11 spurred investors to jump into safe investments such as money funds, they also note there was already an obvious trend in that direction.

“Investors behaved in a manner consistent with past bear markets, slowing down new purchases of fund shares,” observes Chris Wloszczyna, a spokesperson for the Investment Company Institute in Washington.

ICI data shows there was a net outflow of $29.3 billion from stock mutual funds in September as investors ran for cover in the direction of the money market and bonds. There was also a modest outflow from hybrid funds.

“The amount of money coming in has been declining since the first quarter of 2000,” notes Wloszczyna. “Money coming out of the [stock] funds has also declined, but not as quickly. This is typical of what weve seen back to end of World War II, whenever the stock market declines.”

When the financial markets reopened about a week after Sept. 11, anecdotal evidence suggests there was a spike in consumer redemptions. But this was not unusual, Wloszczyna says.

“There may have been pent-up demand from people who hadnt had access to their money,” he adds.

Like ICI, Standard & Poor’s also found that for the first time in several months, fund companies in October reported new cash coming back into stock funds.

Spokespersons for insurance companies that sponsor mutual funds said their funds largely fared no better or worse than the industry as a whole.

Anticipating adverse investor reaction to the terrorist attacks, many companies increased staffing levels of call centers and placed reassuring messages on their Web sites for both consumers and financial professionals.

“Sept. 11 was more of a blip,” says Mike Beer, vice president of mutual funds for the Principal Financial Group, Des Moines, Iowa. “There was a 24% decrease in sales in September, but October rebounded to more normal levels. November looks like it will be the second highest sales month for the year for us [after April]. So weve seen a rapid recovery from Sept. 11. I think that’s true for most in the investment industry.”

Scott Curtis, senior vice president for the independent broker/dealer division of GE Financial Assurance, Richmond, Va., concurs.

“Since the end of September through today, weve seen a pickup in interest in GE stock funds that are more value-oriented than growth-oriented,” Curtis observes. “Thats what people are looking for now, not the go-go style of 97 and 98. Given whats been going on all year, people have focused more on consistent performers rather than home-run hitters.”

GE Value Equity, U.S. Equity, and Premier Growth have all shown respectable returns over the long haul, Curtis says, even though, in the past year, like most funds, their rate of return has declined. GEs Small Cap Value has returned about 4.7% in the past 12 months, according to Barrons.

In general, insurer-sponsored funds have been telling financial advisors to remind their reluctant clients that theyre not in mutual funds to get rich quickly.

“Weve tried to get the word out to advisors and investors to focus on long-term goals and results, even more so because of Sept. 11,” says Gregg Stitt, spokesperson for Oppenheimer Funds, the New York-based subsidiary of Massachusetts Mutual Life Insurance Company in Springfield, Mass.

To equip its advisors to handle customer concerns, Oppenheimer has added new training modules to its Web-based educational package for producers, known as Client Connect.

“We added after 9-11 Managing Through Tougher Markets, which discusses different ways to help advisors support clients,” says Stitt. “It touches on issues other than strictly investing concerns–the after-effects of traumatic experiences, such as stress, fear, anxiety, depression–because how people react to these events might affect difficult investment decisions.

“Were just trying to point out to advisors what they need to tell investors to make sound decisions, to come up with the best solution to their financial needs going forward,” Stitt says. “We didnt change our message, just reinforced it.”

State Farm Life Insurance Company in Bloomington, Ill. says it has not seen an adverse impact on sales of its funds, primarily because they are relatively new and hence are still in a fast-growth stage. The company introduced its line of funds to its agents in March, offering three types of equity index funds, a balanced fund, two bond funds and a money market fund.

Following the events of Sept. 11, “we reached investors and agents through internal communications and our Web site,” says Kris Dunne, a company spokesperson.

State Farms marketing unit provided agents with additional materials, including a chart that outlined the recovery of markets after certain catastrophic events in the past, such as Pearl Harbor, and the Gulf War.

“We also had a team prepared to handle concerns from investors or agents, but by and large, they did not have any,” Dunne says.

“One of the important things to remember is where our philosophy is,” she observes. “Its about long term investing. Our securities products were selected with that in mind.”

Many fund managers believe the market is on the brink of a rebound and are acting accordingly, reports Rosanne Pane, mutual fund strategist for Standard & Poors, New York.

Stocks that might benefit the most from a bull market include semiconductors, telecommunications and other technology areas where good stocks are available relatively cheaply, along with some cyclical industries, such as retail, she adds.

“For the last few weeks, fund managers have anticipated a recovery, and I hear they are repositioning their portfolios for a recovery, which they expect early next year,” she says. “Were beginning to see acceptance in the industry that there will be a substantial monetary and fiscal rebound.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 17, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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