Lipper Research Analyst Don Cassidy on "Business for Breakfast" 1060 KRCN
Tuesday, May 24, 2005
Q. Don, you folks at Lipper have been looking at the latest trends in whatinvestors are doing with their funds investments?A. Right, my colleague Andrew Clark led the work this month, and the Aprilnumbers show some pretty strong patterns.
Q. By strong, do you mean lots of money flowing in?
A. Bad choice of words on my part. ?Very clear patterns of likes anddislikes,? is the better way to say it.
Q. Now, the stock market was down some in April, right?
A. Definitely, although there was a little rally that rescued the moodsomewhat in the final half and on the last day, S&P 500 was down 1.9% net(NASDAQ quite a bit more!), and the average equity fund lost about 2.9%since small-caps and world-equity did worse than the large-caps.
Q. So, did you get the sense that flows were reflecting the hot and coldareas of the market?
A. Absolutely. And that is true almost in any month you examine! Weestimate net flows into stock funds at +$13.5 billion for April, down fromabout $15 billion in March. We suspect that the April numbers would havebeen worse except that many people made last-minute IRA contributions byApril 15.
Q. What kinds of funds were getting money, or seeing money flow out?
A. The most striking point is that diversified DOMESTIC equity funds had asmall outflow while WORLD EQUITY funds took in about $11.3 billion! Thiswas in the face of a rising dollar and negative returns for the month.People definitely have been following recent past performance in makingthese choices -- and of course world funds did best in 2003 and 2004 andare still a little ahead for 2005.
Q. Where overseas are they putting the money?
A. There is very little going into specific-country or even region funds.People are not confident enough to make that kind of choice. So MULTI-CAPfunds got nearly $12 billion while funds aimed at large, mid, and small-capstocks saw basically a net wash.
Q. Is that any different from what was happening in U.S-focused funds?
A. Overall, no. The multi-cap funds here took in over $10 billion and thenet for other types was equally negative. The subtle difference was thatsmall-cap here had an outflow but is performing better over there and sostill get modest inflows.
Q. How about large vs small, and value vs growth, Don?
A.
| Value +$4.9 billion | Growth -4.1 |
Large -9.2 | Small -1.6 |
Q. What does that tell you?
A. I see it as people still bailing out of what has not worked for 5-6years (maybe late though!), and not having the confidence to make specificchoices, so they go for the safe-feeling middle. Multi-Cap Core had thelargest net flow, at +$4.8 billion, in April.
Q. What about SECTOR funds, Don? How are the energy funds holding up?
A. Well, the Natural Resources funds had a small inflow (about +$200million) but that is down more than 90% from their February inflows whenthe price of oil was running up.
Q. Any other areas getting decent inflows?
A. Well, among EQUITY funds, yes. The Real Estate funds and the Utilityfunds each took in about $400 million. They were helped by investor cautionabout the market plus the desire for current cash yield. Income funds tookin $1.8 billion and Balanced funds added almost $1.2 billion. Technologyfunds saw another $1.6 billion net flow out. So you see the taste forcautious choices.
Q. And what about bond funds?
A. Overall, a net outflow of $5.4 billion, including some $2.2 billion outof high-yield ("JUNK") funds. There was a clear move to quality and towardsthe shorter term. Loan Participation funds took in $500 million. Ditto forTIPs funds. And Short-Intermediate Investment-Grade bond funds attracted anet of $400 million. Most types at the longer end, whether taxable or muni,had net outflows.
Q. How about money-market funds? Rates have started coming up...
A. Right, and that helps. But April is a seasonal outflow month there dueto tax payments. About $33 billion went away on a net basis. But that wasthe best for any April since 2002, when people paid lower final taxes dueto their market losses in 2001.
Q. Overall, how do the total flows strike you, Don?
A. You could say "not bad" since the market tone through April was prettydreary. But in terms of setting aside money for retirement, I'd say notvery good... The $13.5 billion that went into stock funds is barely morethan we estimate 401(k) plans get in an average month, so it looks asthough people are not exactly doing a lot of net investing in their taxableaccounts!
Q. Thanks Don.
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Don Cassidy is a Senior Research Analyst at Lipper specializing in fund flows, exchange-traded funds, (ETFs), closed-end funds, equity fund performance, and author of Trading on Volume (McGraw-HIll).
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