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Fund Firms Aim to Reassure During War

March 26, 2003

NEW YORK (AP) _ As the war rages in Iraq, mutual fund companies are using various tactics to reassure investors their money is safe where it is.

Through messages on their Web site or discussions with phone representatives, many big fund companies are emphasizing their readiness to protect investor money, while warning of the danger of panicky behaviors, such as a rush into money market funds. Some companies rely on historical data to make their point, while others resort to patriotic language to appeal to investors.

T. Rowe Price Group Inc., for example, believes in providing a lot of information to investors and displays on the top of its Web site several war-related articles packed with data.

``Investors often make emotional decisions, which turn out to be financially disastrous,″ says Brian Sullam, the Baltimore company’s Web editor for retail marketing. ``We can at least give them solid information on which to make decisions.″

T. Rowe began presenting its war package this month with a detailed analysis on how the stock market behaved before, during and after several wars in the past, starting with World War II.

What was the conclusion? Doubts and uncertainty often cause the market to underperform during the period leading up to a war, but a short conflict with a positive resolution leads to a quick rebound. A longer war, however, can hurt through the erosion of consumer and business spending, increased inflation and government deficits, and a decline in economic output.

The T. Rowe site also has question-and-answer sessions with fund managers discussing how the war in Iraq will affect different types of investments, such as stocks, bonds and international equities.

Fidelity Investments, meanwhile, tries to reassure investors by stressing the company’s long experience in managing investors’ assets through different market and political environments.

``No one can predict the course of events in Iraq, or how financial markets might respond,″ Robert Reynolds, Fidelity vice chairman, said in a letter to investors posted on the company’s Web site. ``What we do know is that we are well-prepared and working hard on your behalf.″

The Boston fund giant’s Web site also includes an article quoting independent planners discussing issues such as the ``risk of being too conservative″ and the importance of continuing to make contributions to retirement plans.

Yet, others try to reach the heart of investors with patriotic language. In a message on the company’s Web site, John Murphy, chairman, president and chief executive of OppenheimerFunds Inc. of New York, wrote: ``At OppenheimerFunds, we believe in America _ in the strength of our people and our institutions and in their ability to endure and prosper.″

Of course, fund companies have their own interests in telling investors to keep their cool because they want investors to stay invested in their funds. Even a shift of funds from equity to investment products perceived as safer, such as fixed-income and money market funds, usually isn’t desirable within a company because such funds bring in lower fees.

Burton Greenwald, a Philadelphia fund industry consultant, said these encouraging messages from fund companies could have a hollow ring, particularly if they come from fund companies that cheered on investors during the technology boom, oblivious to the concept of asset allocation or long-term planning.

``I don’t think the funds can deliver a message that have much credibility unless they have had a consistent history of communicating with their shareowners in a frank and credible way,″ he said.

While the Internet and phone representatives appear to be the most prevalent ways to convey these messages, some companies are using additional methods.

Strong Capital Management Inc. of Menomonee Falls, Wis., hosted two investor conference calls in mid-March where Jay Mueller, economist and head of fixed income, discussed the war’s effect on the economy and markets.

At Vanguard Group, chairman John Brennan has been busy over the past several days making television appearances and answering investor calls at a call center. His message is to stick to long-term investment plans and not to succumb to emotion and irrationality.

``It’s quite likely that the various uncertainties and anxieties will result in volatility in financial markets for at least the short term,″ Brennan wrote in a message to investors. ``But the conflict in Iraq should not dictate that investors make changes in a sensibly constructed long-term portfolio.″

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