October Data Shows Surge In Fund Flows

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The combined assets of the nations mutual funds increased by $202.9 billion, or 2.9%, to $7.151 trillion in October, according to the latest figures available from the Investment Company Institute, Washington.

ICI, the mutual fund industry trade group, surveys mutual fund companies on assets, sales and redemptions.

The figures were released after the recent allegations of fraud against some mutual fund companies began to emerge but before the full impact of that scandal was felt.

“Its too early to look at the effect of the scandal, but it appears that it has had an impact on individual funds that were named [by the Securities and Exchange Commission and state officials] rather than the overall industry,” says James Doyle, a spokesman for ICI.

Other observers doubted the allegations would have much effect on fund flows.

ICI reports that long-term funds showed an inflow of $28.12 billion in October, up 46% from $15.13 billion in September. Octobers inflow was the second highest for the year, just below a $29.35 billion inflow in April, ICI says.

For the first 10 months of the year, long-term fundsconsisting of stock, bond and hybrid funds–had a total net inflow of $186.4 billion, up 75% from the same period in 2002.

Stock funds led for the month with a $25.52 billion inflow, the largest of the year for this group of funds and up from $17.26 billion in September.

Since posting a small outflow in the first quarter of 2003, stock funds have experienced an average monthly inflow of $19.2 billion over the past 7 months.

The strength in inflows over this period coincides with rising stock prices in the U.S. and abroad, ICI notes.

Lipper Inc., New York, a unit of Reuters, reported similar figures for October.

Don Cassidy, a Lipper analyst, says flows for November may be reduced but still on the positive side.

“Partly that may be a response to the scandal, but I think a bigger influence is performance,” Cassidy says. “The market was down for the first 3 weeks of November, and people always pull back when its weak.”

Bert Greenwald, a fund consultant in Philadelphia, expects fund flows to continue “very strong.”

“Those funds with a high profile in the scandal, like Putnam, have suffered,” says Greenwald. “Equally important to losing investor trust, they are losing the confidence and support of distributors.

“But in the aggregate, I think funds remain very high. Money seems to be flowing to other funds,” Greenwald says.

He estimates that half of mutual fund cash flows come through employer-sponsored 401(k) plans. “Those are almost all on automatic pilot” in terms of investing in mutual funds, he notes.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 12, 2003. Copyright 2003 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.