After August stumble, investors return

January 24, 1999|By Bill Atkinson | Bill Atkinson,Sun Staff

Investors plunged back into stock mutual funds after pulling billions of dollars from them in August, and industry experts are hopeful the money will keep flowing this year.

Executives at mutual fund companies are optimistic over what they have seen in 1999.

"The fund flows have been phenomenal," said Raymond A. "Chip" Mason, chairman and chief executive at Baltimore-based Legg Mason Inc., a diversified money management firm. "It has been wonderful."

Assets in Legg Mason's 18 mutual funds have shot up to $15.4 billion under management as of Jan. 11, a 64 percent increase from a year earlier. And assets in Legg's hottest performing mutual fund, the Value Trust Fund, have more than doubled to $8.4 billion over the same period, up from $3.65 billion a year earlier.

The money has been flowing into funds run by Baltimore-based T. Rowe Price Associates, too. Assets in T. Rowe's 76 mutual funds jumped 17 percent to $95 billion on Jan. 12, compared with $81 billion the prior year.

"It has been such boom times," said George A. Roche, T. Rowe's chairman and president. "The outlook would be for more growth, but at a slower rate."

Other factors could play into the mutual fund industry's hands this year. Foremost is the strong economy, which has been driven by low inflation, low interest rates and strong consumer spending.

"The forces behind the growth of the industry remain in place," said Brian Reid, senior economist at the Investment Company Institute, a Washington-based trade organization. "The industry is in good shape. It offers diversification at low cost. It is really difficult to beat that."

Another reason for the optimism is investors continue to view mutual funds as a popular way to save money. Reid said there is growing acceptance of mutual funds among younger people in their 20s and 30s.

"I don't see any reasons for that trend not to continue," he said. "Mutual fund growth continues. I think it is because mutual funds specialize in providing diversity."

But both Mason and Roche worry that the mutual fund business could be hurt this year by unforeseen global events that stun the market and shake investors' confidence.

"You never know. It [a surprise] can come from somewhere you haven't thought about," Mason said.

Mutual funds were jolted in August when nervous investors pulled their money out of stock funds because they were afraid that the economic problems in Russia and Japan, coupled with uncertainty about President Clinton's future in office, would derail the economy.

Investors pulled $11.7 billion out of stock mutual funds in August, marking the first month in eight years that investors were overall sellers of stock funds.

Money flowed out of many mutual fund companies, including T. Rowe Price, where August was the first month in more than five years that more money went out of the company's stock funds than came in.

Overall, $155.6 billion flowed into stock mutual funds in the first 11 months of the year, down $56 billion or 26.5 percent from the same period in 1997, according to the latest Investment Company Institute numbers.

While investors shifted away from stock funds, they embraced bond and money market funds. Inflows into bond funds more than doubled to $57.3 billion for the first 11 months of 1998, compared with $23.5 billion for the same period a year earlier. More than $244 billion flowed into money market funds, compared with $103 billion for the same period a year earlier, according to the ICI.

But overall, the August storm was a small one for the mutual fund industry, which had a record $5.37 trillion in assets at the end of November. Barring similar unforeseen problems, analysts have high expectations for Legg and T. Rowe this year.

John A. Hall, an analyst at Prudential Securities Inc., expects T. Rowe, the nation's 10th-largest mutual fund with $130 billion in assets under management, to continue to steal market share from competitors.

"They are selling service and performance, they put up in both regards," Hall said.

Michael Flanagan, a brokerage analyst at Philadelphia-based Financial Service Analytics, expects Legg Mason continue to grow "significantly in '99 barring unanticipated market turbulence."

He likes Legg, which has $75 billion in assets under management, because of its diversification with mutual funds, brokerage and investment banking businesses that help it weather market turmoil.

"Legg Mason is on a roll," Flanagan said. "It is going to take a very steep hill to slow it down."

Despite the strong start to the year, Mason is cautious.

"I hope it is going to be a good year," he said. "You just say nothing is forever."

Pub Date: 01/24/99

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