Fund investors are net sellers as market tumbles Outflow 'is a change in direction,' T. Rowe Price reports

September 01, 1998|By Sean Somerville | Sean Somerville,SUN STAFF Bloomberg News contributed to this article.

Individual mutual fund investors, who helped push the Dow Jones industrial average to record highs during its bull run, are pulling back from the diving stock market.

T. Rowe Price Associates Inc. said yesterday that August marked the first month in more than five years that more money went out of the company's stock funds than came in.

"It is a change in direction," said Steve Norwitz, a vice president at Baltimore-based T. Rowe Price, who added that the last month the company's U.S. stock funds had net outflows was March 1993.

August also marked the first month in eight years that investors were overall sellers of stock funds, reported, which tracks 3,400 mutual funds.

U.S. stock funds are on a pace for August to attract the smallest amount of cash since 1991, when the economy was emerging from a recession, Trimtabs said.

And about $45.4 billion went into money market funds in the first four weeks of August, about 2.5 times this year's monthly average, according to IBC Financial Data Inc. of Ashland, Mass.

With the Dow falling 512.61 points yesterday -- continuing a decline that has more than wiped out this year's gains -- Fidelity Investments, Strong Capital Management Inc. and Charles Schwab Corp. said some investors are moving money from stock funds to fixed-income funds in search of a haven.

Fidelity, the biggest U.S. fund company, reported that $1.8 billion was pulled from stock funds in August.

Most of the money, which represents less than 0.5 percent of the zTC company's total equity assets, was moved to more conservative investments.

Norwitz, of T. Rowe, said some investors cashed out. Others have switched from stock funds to money market funds and bond funds.

"This doesn't signal a panic," he said.

"But every day the market takes a sharp dive, investor nervousness increases. I think we saw more reaction [yesterday] than we had been seeing in the last week."

Norwitz said federal rules prohibit him from disclosing the precise net outflow from T. Rowe's stock funds. But he said outflows as a percentage of the company's roughly $90 billion under management in mutual funds are "very moderate."

"It has picked up since the Russia crisis emerged," Norwitz said. "It's not an extreme reaction as of yet."

It could get worse. A lot of investors start to make decisions about their investments at the end of the day, after they see the market's daily performance. "I don't know what will happen overnight," he said. "I expect [today] will be a busy day.

T. Rowe encourages investors to stick with their investment plans and not to overreact to sudden market volatility.

"Stock markets have been very resilient," Norwitz said. "Valuations now are much more attractive."

He said as recently as last week T. Rowe's value-oriented fund managers were buying stocks with suddenly attractive prices.

Not all stock funds are losing investors. Bruce Behrens, co-manager of Flag Investors communications fund, said the $900 million fund continues to net between $3 million and $4 million a week.

"I've hardly had a negative day" in August, he said, adding that his figures were current through Thursday.

He said the fund has attracted mostly conservative investors, who are not likely to sell on a bad day and look for the next hot stock.

"Our history is pretty conservative and our clientele has been that way," he said.

Still, Behrens said, he wouldn't be surprised if investors withdraw some of their money.

"I expect we're going to see some negatives, particularly because the market is going to rattle some cages."

Pub Date: 9/01/98

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