Despite the technology stock collapse and falls in all indices towards the end of the year, equity-based mutual funds had a record year in 2000: US mutual fund trade grouping Investment Company Institute reports net equity fund sales of $300bn in the first eleven months, although half of this came in the first four months of the year, showing that the boom in tech stocks underpins the year as a whole, whatever happened later. This figure compares with previous record $227bn, set in 1997. November, however, saw a sharp drop in net sales to only $9bn, with money market funds taking in a high $52bn in the month, double October's figure.
It doesn't seem, however, that the figures represent a major shift in investing habits, but more likely just an increase in overall wealth, which has to go somewhere: Charles Schwab reports that their customers had 36% of their assets in mutual funds last year, compared with 35% in 1999, and 37% in 1998 and 1997. Yet Schwab sold 40% more mutual fund units in 2000 than in 1999.
The increasing flows into mutual funds have not been matched by performance: on average, growth funds are down 10% in 2000, nicely matching the S & P 500 Index. What's also clear is that many aspiring do-it-yourself traders have backed off running their own equity book, returning to more sedate investing habits or starting relationships with professionals.
Meanwhile, the US hedge fund industry thrived in 2000, according to consultants Hennessee Group, returning an average 6.25% after fees. This doesn't sound much, but it compares favourably with the 10.5% decline in the S&P 500 index, never mind the Nasdaq's 40% loss, reflected in an average 32.5% loss for technology funds. Total hedge fund assets grew in the period from $324bn to $400bn, nearly 25%, but dwarfed by the equity mutual funds' $300bn rise.
The overall rise in hedge fund assets masks a trend towards more but smaller funds, as many large hedge fund magnates respond to the growing maturity of the sector by scaling back the size of their funds, or quitting public fund management altogether like George Soros, Tiger Management, and Jeffrey Vinik. Most recently, Moore Capital Management, which has about $8bn under management, announced it would return about $3bn to investors, targetting a maximum $5bn fund size; in 1999, Moore returned $1.5bn to investors, but still lost 5.9% in its leading funds in 2000.
Louis Bacon, Moore's founder, along with George Soros, Julian Robertson and others, was one of the group of early hedge fund masters of the universe who challenged Governments in the 1980's - and usually won. Those days are over, and hedge funds have now become almost pedestrian as the world and his wife jump aboard the train, slowing it down to a pace at which the average 'mass affluent' investor feels comfortable. While hedge funds are not yet suitable for widows and orphans, they are increasingly winning regulatory acceptance, even in Europe, which has stringent investor protection laws.
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