Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!usa-post Newsgroups: usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Mon, Apr 13 1992 Date: Mon, 13 Apr 92 05:42:38 EDT Message-ID: 04-13 0000 BONUS: Stock funds keep record pace USA TODAY Update April 13, 1992 Source: USA TODAY:Gannett National Information Network Money is pouring into stock mutual funds like waves over a ship's gunwales. The funds are taking in $ 43 million every business hour of every business day. That's an average $7.2 billion a month from December through February, the latest figure available. During the same period a year earlier, the inflow averaged $1.3 billion a month. Fund managers say investors have kept the pace since February. HAVE RETURNS ON THE FUNDS WARRANTED SUCH INVESTOR ENTHUSIASM? So far this year, stock funds haven't rewarded investors' enthusiasm. The funds took off like a missile last year, soaring 18% the first quarter and 36% for the year. Thousands of investors dumped their certificates of deposit and money-market mutual funds for stock funds. But stock funds were duds last quarter, falling an average 0.2%. Most investors would have earned more in CDs. WHAT EFFECT DOES THE STOCK MARKET HAVE ON THE FUNDS? If the stock market dives, the funds will founder, too, taking millions of investors with them. It's a scary scenario. Last year, stock funds accounted for 9.1% of the stock market, up from 6.4% in 1990. If investors panic, the damage to the market and themselves would be far worse because of the volume of money they control. But it's a good bet that many new stock-fund investors will ride out any short-term problems in the market. HAS THERE BEEN ANY EVIDENCE OF THAT? When the Dow Jones industrial average fell a total of 94 points Tuesday and Wednesday, fund managers say, the cash kept flowing in. And even if returns from stock funds aren't as titanic as in the 1980s, investors will be happy as long as yields stay low on safer investments. HAS THE POPULARITY OF STOCK FUNDS COME AS A SURPRISE? The cash surge into stock funds wasn't entirely unexpected. The 77 million members of the baby-boom generation, now 28 to 46, are moving into their peak earning years, when they will stop borrowing and start saving for retirement and their children's education. And the savings era is just beginning: The inflow to stock funds is the equivalent of each boomer investing less than $100 a month. But falling interest rates have turned the groundswell of interest in stock funds into a tidal wave. WHAT KINDS OF YIELDS ARE OTHER INVESTMENTS OFFERING? Current average CD rates range from 4% for a six-month CD to 6% for a five-year CD. Those rates are so low that many savers fear they won't be able to reach financial goals like retirement or college without taking more risk. Their fear of investing in the stock market has been overcome by the fear of not investing in it. WHAT IS THIS MONTH'S INFLOW SHAPING UP LIKE? This month's inflow to stock funds could be the biggest yet, because many investors have to decide what to do with their individual-retirement-account CDs. Most investors with a pulse will want to find higher returns elsewhere - like a stock mutual fund, for example. About $110 billion of CDs will come due this month, making April the second-biggest CD-rollover month of the year after October. WHO IS INVESTING IN STOCK FUNDS? Carol Campbell, a developer in Columbus, Ohio, could become a new stock-fund investor this month. She has retirement savings in her company 401(k) plan's money-market fund. "It's money I feel I could put at risk for a period of time," Campbell says. "I'd recognize a better long-term gain in the 401(k)'s stock fund than with its money fund." WILL THE WAVES OF CASH SWAMP FUND MANAGERS? Most say no. "Frankly, we see enough things to buy," says William Hayes, director of equities at Fidelity Investments, the $165 billion mutual-fund behemoth in Boston. "We're not in a quandary." Most of the money going into stock funds at Vanguard Group has gone into its Index 500 fund, says Brian Mattes, spokesman for the $41 billion fund group. That'd be no trouble to invest, Mattes says, because the largely unmanaged fund simply buys the stocks in the Standard & Poor's 500-stock index. Those stocks are large, readily available and actively traded. WHAT ARE FUND MANAGERS SAYING? "The inflows are actually working to our advantage," says Bob Bacarella, manager of the Monetta fund, whose assets have mushroomed from $6 million in 1990 to $140 million today. Bacarella is bearish and has 32% of the fund's assets in money-market securities instead of stocks. If the market goes down, as Bacarella expects it will, the cash will cushion the blow - and the fund will have plenty of cash for buying stocks when they're cheap again. But some managers admit it's hard finding a place for all that money. WHY IS THAT? "It's been trying at times," says John Kaweske, manager of Financial Strategic Health Sciences. His fund's searing 91% gain last year brought a flood of cash. "It's difficult to manage all this growth, and we've had to nearly double our staff." How well a fund handles large amounts of new cash depends on its investment objective - and its management, says Don Phillips, publisher at Morningstar, the Chicago fund-tracking firm. "It's hard to invest in smaller companies with large amounts of cash," he says. "If your talent is for finding small, off-the-beaten-path stocks, then a big asset base will hurt you." CAN ANYTHING ELSE HURT A FUND? A fund's performance isn't all that may suffer. Normally routine matters, such as answering phones, can become big problems for a fast-growing fund group. Earlier this year, investors spent hours trying to reach Twentieth Century Investors in Kansas City, Mo., and the Janus Group in Denver. Both have added staff to handle inquiries and new accounts. Nevertheless, the massive cash infusion into stock funds will help boost the stock market - both now and for the long term. HOW WILL IT BOOST THE STOCK MARKET? "Once the money goes into a stock fund, it's not likely to run away on a short-term basis," says John Brooks, technical analyst for Ned Davis Research in Atlanta. Brooks says he would be more concerned if there were big inflows into small, highly speculative funds. But most of the cash swamping stock funds is spilling into large, more conservative funds. Also, about 30% of all stock-fund assets are invested for the long term as part of people's individual retirement accounts, Keogh plans or 403(b) retirement savings. WHY IS THAT SIGNIFICANT? Typically, those who invest for retirement tend to stay put. That may be true even if the returns from stock funds in the 1990s don't match the sizzling returns from the red-hot 1980s. But it may be that the '80s decade was a once-in-a-generation phenomenon. The S&P 500 gained an average 17% a year in the 1980s. The past 60 years, the stock market, measured by the S&P 500, has gained an average 11% annually, including reinvested dividends. And normal returns from stocks look awfully good compared with savings rates, which also are approaching their long-term averages. Bonus Editor: William Snoddy. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM