Stock Fund Inflows Beating ’96

This year is getting off to a faster start than 1996’s record pace, at least in terms of the amount of cash going into U.S. stock funds.

Many of America’s biggest fund companies are reporting record inflows at a time when some Wall Street analysts are warning that the bull market is running out of steam.

“The market is going to have a tough time going down if money keeps pouring into mutual funds at the rate it is,” said Tim Pitts, executive vice president of OppenheimerFunds Inc. in New York. “Someday we’ll have a bear market, but there’s more buying support for this market than ever before.”

Fund groups such as OppenheimerFunds, Vanguard Group, Putnam Investments Inc., T. Rowe Price Associates Inc., Janus Capital Corp., MFS Investment Management and Scudder, Stevens & Clark Inc. said this month’s equity fund inflows are on pace to top last January’s record $28.9 billion.

A smaller group of fund companies, including Fidelity Investments and Aim Management Group Inc., said net inflows were slightly below last January’s levels but still ahead of December’s figures.

January tends to be the top sales month of the year for mutual fund groups because it’s the time when many companies match contributions that employees make in retirement plans. Also, January is the month when the highest number of new 401(k) plans are established.

“Our 401(k) business is accounting for about one-third of this month’s inflows,” said Jerry Potts, marketing director at Boston-based MFS Investment Management.

1996 was a record for equity fund inflows. The Investment Company Institute reported Tuesday that $222.08 billion poured into stock funds during all of 1996, including $12.22 billion in December. That exceeded the previous all-time high of $129.6 billion in 1993 by more than 70%.

The huge inflows correspond with the best two-year performance for equity funds since 1979-80. The average stock fund rose 56.23% in the two-year period ended Dec. 31, according to the research group Lipper Analytical Services Inc.

“We’ve been spoiled by a market that keeps going up, up, up,” said Janis Miller, Putnam’s managing director of retail marketing. “The questions is, will investors keep investing when the market is falling?”

Taxable bond funds weren’t nearly as popular last year as equity funds but still reversed two years of outflows. A net $13.17 billion was added to taxable bond funds in 1996, while about $6.3 billion was pulled from municipal bond funds, the ICI reported.

The industry’s net assets totaled $3.54 trillion at the end of 1996, up 25.5% from the end of 1995. These figures include stock, bond and money market mutual funds.

The ICI also reported that equity fund managers were holding less cash on a percentage basis than at any time since January 1977. The average stock fund had 5.5% of its assets in cash at the end of December, down from 5.9% on Nov. 30.

Vanguard said more than 60% of the $2.8 billion invested in its equity funds went into market index funds this month. “We have record inflows in index funds and across the complex,” said Brian Mattes, Vanguard’s spokesman.

Fidelity said its equity funds attracted more than $2 billion. That’s down from $2.9 billion in the first 3 1/2 weeks of January 1996.

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Boom Times

Stock mutual fund assets have mushroomed in recent years, while bond fund assets have grown at a relatively slow pace. Assets, in billions:

Stock funds: $1,752

Bond funds: $886

Source: Investment Company Institute