Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, June 29, 1990 TAG: 9006290726
SECTION: BUSINESS PAGE: A-5 EDITION: EVENING
SOURCE: The New York Times
DATELINE: LENGTH: Medium
The managers added that "junk bond" funds, after nearly a year of seeing money pour out, are finally attracting new cash.
The comments came Thursday as the Investment Company Institute released figures showing that previously cautious fund managers poured cash into stocks in May, helping to push prices up.
Before that spending spree, the funds had allowed their cash to rise to record levels.
Fund managers in May bought $5.2 billion more in common stocks than they sold, up from a net purchase of $888 million in April.
As a result, just 11.3 percent of the assets of stock mutual funds was held in short-term money market instruments, called cash in industry jargon. That was down from a record 12.5 percent at the end of April.
As the junk bond market fell into disarray in late 1989 and early 1990, investors rushed to pull cash out of funds that invest in these high-risk securities.
In the 10 months that ended in April, investors withdrew a net $6.3 billion from such funds.
But in May, the cash flow was a positive $57 million, a small fraction of what was previously withdrawn but the first positive figure since June 1989.
The cash-flow figures include sales and redemptions, as well as transfers between different funds, but exclude reinvested dividends.
This month, many fund managers said, the flow into junk accelerated.
"The high-yield fund was our strongest seller in the bond area in June," said Jane Nelson, a spokeswoman for the T. Rowe Price group of funds. "We had a big shot into it from net exchanges," as investors moved money from other funds in an attempt to time the market.
At Fidelity Investments, junk funds also drew in cash, said Michael Hines, a spokesman.
And Greg Johnson, a vice president of the Franklin Group of funds, said junk funds "have been in positive cash flow for two months, which is the first time in a long while."
But not all fund managers said their junk funds were gathering cash.
At Investors Diversified Services, a subsidiary of American Express Co., "We are still seeing slightly negative outflows, although we have a 50 percent improvement from May," said Diana Holmes, a spokeswoman.
And Henry Schmelzer, a vice president of New England Securities, said there was "no interest" in his junk fund among customers.
May was a strong month for stocks, with the Dow Jones industrial average rising 8.3 percent.
Fund switchers, those investors who try to time markets by moving cash among different funds, were convinced that the move was real and moved a net $2 billion into equity funds during the month.
That was the largest such figure since the beginning of 1979, the earliest period for which comparable figures are available.
The previous high was $1.7 billion in August 1984, as the market rose sharply after declining early that year.
The cash flow into equity funds from sales less redemptions, not including the fund switchers, was $2.3 billion in May, down from almost $3 billion in April, when the figures were swollen by retirement accounts, which had to financed by April 16 this year.
In June, fund managers said, there was a definite slowdown in sales of equity funds.
Brian Mattes of the Vanguard Group said that overall cash flow into equities was running at "about two-thirds the May level, which is not bad," but added that all that money in June came from new purchases.
The fund switchers have taken money out, he said.
At Fidelity, Hines said that this month "there are positive net sales for equity funds, but not by much."
Another sign of increased caution on the part of mutual fund investors came from the Fidelity Investments survey of investors' attitudes, taken by the University of Michigan's Survey Research Center.
While the survey found overall investor confidence was slightly higher, it found that only 19 percent of mutual fund owners said they intended to buy stock funds in the near future, compared with 37 percent in April, when the question was previously asked.
But there was a small increase in the number of fund owners who said they planned to add to bond funds, and a sharp rise in the number who said they planned to add to money market funds.
by CNB