The Dog Days Of August Are Lingering For Funds

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For the mutual fund industry, the dog days of August began early and could be ending late, according to data culled from mutual fund research firms.

Depending on whom you ask, August sales data range from outflows in equity funds in the $5 billion-$6 billion range to a more optimistic report of “flat” asset totals.

Through mid-September, data indicate that sales have been scattered, with a promising first week followed by a “tough” period, according to Don Cassidy, senior research analyst with Lipper Inc., Denver.

“August was a bit discouraging. The S&P was up a half a percent, but there were $5 billion-$6 billion of outflows from equity funds,” says Cassidy. It was the first time this happened since December 1988, he adds.

Investors are being selective, as witnessed by inflows into value, balanced and real estate mutual funds, he says, while outflows are being traced in growth and technology stocks.

Bond funds–in particular, short to intermediate funds and government funds that offer quality–are showing stronger sales with inflows of more than $19 billion, Cassidy says.

Equity fund cash flows were flat in August compared with an approximate $50 billion outflow in July, says Avi Nachmany, director of research, Strategic Insights, New York.

The move out of equity funds was more pronounced in variable annuity products than in mutual funds, he adds.

Money market funds declined as of mid-September, says the Investment Company Institute, Washington. ICI says fund assets decreased $15.18 billion to $2.245 trillion from $2.26 trillion.

The total decline may be as high as $18 billion, according to Peter Crane, a vice president and managing editor with iMoneyNet, Westborough, Mass.

There are a number of reasons for the decline, Crane explains. Some seasonal factors include end-of-summer vacations and tuition bills on the retail end of the business and quarterly tax payments on the institutional end, he adds.

Flat short-term yields have investors searching for richer yields in investments such as repos and stable value funds, Crane says. Many retail investors are getting tired of 1-1/4% yields, he adds. “Rates are flat as far as the eye can see.”

Money is migrating to stable value funds and banks which, he says, are “taking back some share.” Even brokerage houses have been sweeping cash into banks, Crane adds.

He predicts 2002 will be the first year since 1983 that money funds see a decline in assets and adds that since money funds are about a third of all mutual funds assets, the fund industry overall might see its first decline since 1982.


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 30, 2002. Copyright 2002 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.