Redemptions of long-term funds - stock, bond and hybrid funds - in the first half of 1999 reached nearly half a trillion dollars., according to the Investment Company Institute, the fund trade group in Washington, D.C. These redemptions soared by 46 percent to $498 billion, from $341 billion in the first half of 1998, according to ICI. These heavy redemptions counteracted an 18 percent rise in gross sales, effectively bringing net sales down by 37 percent, according to the ICI.
Gross sales for the six months were up by 18 percent to $609 billion, from $514 billion in the comparable period of 1998, according to ICI. And mutual fund companies enjoyed the strongest sales month so far this year in June, with net new cash flow of $19 billion, up 26 percent from $15 billion in May, according to the ICI.
But that good news was dampened by redemptions. Redemptions in the first half of the year brought net sales down to $99 billion, a 37 percent drop in net sales from $172 billion in the first half of 1998.
The Vanguard Group of Valley Forge, Pa., Janus of Denver, Colo., and Fidelity Investments of Boston continued to attract the largest proportions of net flows in the second quarter of 1999, according to FRC, a mutual fund research firm in Boston. Vanguard has attracted the most net assets of any mutual fund company so far this year - $32 billion-according to FRC. Janus received the next-largest, with $18 billion in net sales, according to FRC. And year-to-date net flows for the third runner-up, Fidelity, were $15 billion, more than double what Fidelity netted in all of 1998, FRC said.
FRC attributed the surge in redemptions to investors' fears over volatile emerging markets and a slowing U.S. economy.
Executives and consultants, however, cited a number of other reasons for the lagging sales (MFMN, 7/12/99.) They said that investors, encouraged by the longstanding bull market, are using mutual fund proceeds to invest directly in stocks themselves. Others are selling out of positions that have reaped healthy gains to buy non-essential goods and services.
Other investors have developed unrealistically high expectations and have been hastily pulling out of funds when they become dissatisfied with performance, consultants said. Then there are those investors who, wary of the extended bull market, have pulled their money out of mutual funds and put it into money market funds. In addition, many financial intermediaries serving high-net-worth clients and sponsors of large defined contribution plans are looking for low-cost investment vehicles for their clients other than mutual funds, consultants said.