Investor Confidence In Stock Funds Returning

by Carla Johnson, InvestorsOffshore.com

04 June 2001

Investor confidence in equity funds appears to be returning, according to data trackers Lipper Inc. The most recent figures available show an estimated $21 billion in inflows in April, which is in sharp contrast to the previous month, when $20.6 billion was withdrawn from stock funds.

Experts believe that this renewed confidence is mostly due to the Wall Street rally which has been injecting the broader markets with new life since early April. However, cautious optimism is the watchword for many investors, anxious not to repeat the mistakes of last year, and the buying has been selective. The biggest advances have been made by the more conservative, value-oriented funds, although higher risk technology funds did attract some investment.

Don Cassidy, Lipper's senior research analyst explained why investors are now shifting their assets from the money markets back to equity funds: 'Investors tend to follow whatever the current trend is. About six weeks ago, comfort meant cash. Now it means putting your toes back in the water but not swimming with the sharks.'

Although the financial data available for April is encouraging, many feel that stock fund managers should not be complacent. To date, the Federal Reserve has cut interest rates five times this year by half a percentage point each time, in order to keep the US economy from sinking into recession. However, industry experts say that it will take more than interest cuts and brief upsurges in the equity markets to bring the rest of the investment community off the sidelines.

Fund industry analyst Dan Richards believes that it will take a sustained period of positive market performance to reassure the most cautious investors: 'You'd have to say nine months or so.' So the message seems to be (to mix metaphors shamelessly) - they may have seen the light at the end of the tunnel, but they aren't out of the woods yet…

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