Investors Flee Stock Funds, Seek Safety In Cash

by Carla Johnson, Investors Offshore, London

19 October 2001

According to figures released by Reuters' subsidiary Lipper, mutual fund investors pulled a record $32bn from their stock funds for the month of September, as the attacks on New York and Washington triggered a steep decline in stock prices. The previous highest outflow was last March, when $20.9bn flowed out of the mutual fund sector.

Fleeing mutual funds, investors moved assets towards perceived safe havens such as bond funds, which took in $7.3bn and money market funds, which received a whopping $64.8bn in the month despite ever-lower interest rates. September generally sees net outflows from these short-term fixed income instruments because investors pay tax bills from the accounts. In 1998, 1999 and 2000, September averaged $5bn in net outflows, according to Lipper.

Unusually, institutional investors pulled out a net $6bn from mutual funds - usually the regular flow of money from 401k pension plans, which makes up the bulk of institutional cash flow, ensures positive performance.

Funds investing in overseas equities, seen as a riskier asset class than US stocks, accounted for $2.8bn of the outflows. Sector funds, also risky because of their concentration in single industries, lost $3.2bn. Growth-style funds also continued to lose assets, as investors pulled out $12.8bn.

September marked the third consecutive month that stock funds have been hit by net withdrawals, and the fifth such month of the year. Although the September outflow represents a record in dollar terms, it amounts to about 1% of stock fund assets, which stood at $3.39 trillion at the end of August.

However, October could see a small inflow of $300 million, based on activity through Oct. 15, according to estimates from TrimTabs.com, a California-based fund tracker.

Lipper, a wholly owned subsidiary of Reuters, is a leading global provider of mutual fund information and analysis to fund companies, financial intermediaries, and media organizations. Lipper clients manage more than 95% of U.S. fund assets. The firm, founded in 1973 and headquartered in New York, tracks 80,000 funds worldwide through its offices in major financial capitals in North America, Europe, and Asia.

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