Survey tracks investors' sentiment

MUTUAL FUNDS

January 17, 1993|By WERNER RENBERG

Are you thinking of buying or selling shares of an equity or bond mutual fund -- but want to know whether other investors are buying or selling, too? If so, you're not alone.

In fact, because so many investors express interest in the activities of others, Fidelity Investments has sponsored a survey on the issue for the past three years. You and other investors can read the highlights every month.

After the stock market suffered its October 1989 mini-crash, Fidelity was inundated by phone calls from investors wondering whether to sell or buy more shares. "What are others in my situation doing?" many asked.

That gave Michael J. Hines, senior vice president of marketing, an idea. Unable to provide investment advice, he thought Fidelity could pay for a monthly survey of what investors were doing and thinking and share the results with investors via the media.

Of course, as a marketer for the nation's largest mutual fund complex, he also wanted to use the results for another purpose: to help him in planning Fidelity's sales strategy.

Instead of starting a survey, Hines decided to piggyback on the University of Michigan's long-established Surveys of Consumers, whose questions about spending and saving decisions have been asked since 1946. The Index of Consumer Expectations, derived from their answers, has been widely followed because of its accuracy in forecasting the course of the economy.

Under its agreement with Fidelity, effective January 1990, the Survey Research Center would supplement its 40 core questions with nine questions regarding investment intentions and ownership.

Fidelity committed itself to release the results of its Monthly Survey of Individual Investors, including two statistics:

* The net of the percentage of equity fund owners who intend to buy more equity fund shares within three months and the percentage of owners who intend to sell such shares during that period.

* An index of investor sentiment, which reflects attitudes about investors' current and expected financial situation, and about current and expected business conditions.

With the availability of December's data, Hines had three full years of results that Fidelity could analyze.

What did the numbers tell him about investors' behavior?

That it has been predictable in two ways. Investors have tended to alter their net purchases of equity or bond funds:

* in line with changes in their stated investment intentions; and

* in a way that contrasts with changes in their sentiment, or confidence.

For example, a rise in the rolling three-month average of investors' intentions to purchase funds has commonly been followed by an increase in the rate of net purchases of fund shares.

The link between changes in confidence and net purchases has been inverse: An increase in net purchases has tended to follow a drop in the rolling average of the investors' current sentiment index.

That may be the opposite of what you'd expect -- but it's understandable when you think about it. People tend to spend more when they're confident, and to save more when they're apprehensive.

"Today's investor," Hines says, "has a long-term horizon -- and a lot more stomach for going into the market despite sentiment."

Fidelity does not release all of the survey data; some is used for the company's strategic planning.

It makes public only the net of equity fund owners' intentions to buy and sell equity funds -- not the intentions of all investors to buy and sell equity and bond funds.

In 1992, a drop in intentions to buy and a rise in sentiment were followed by decreases in net equity fund sales. But December's data appear to have given a mixed signal.

The rise in intentions to buy equity funds to 47 percent -- the highest since the start of Fidelity's survey -- suggests that net purchases of the funds will increase through March. (In the three years, intentions to buy have ranged from 16 to 56 percent; intentions to sell, from 0 to 15 percent.)

But the increase in the investor sentiment index -- to the highest level since mid-1990 -- suggests that net purchases should decline.

If the data that Hines is holding close to his vest show similar trends, it may take another month's figures to predict how equity fund sales will fare in the first quarter.

1993 By WERNER RENBERG

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