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Mutual Fund Stock Demand Falls

August 11, 1998

NEW YORK (AP) _ Mutual fund investors aren’t panicking, but they are growing leery of the volatile, downward slide of the stock market, fund trackers said Tuesday.

It was too early to tell how investors were reacting Tuesday as the Dow slid 112 points to close at 8,462.85. But with the Dow’s decline nearing 10 percent from its July record, fund-watchers said that in recent days investors have been more attracted to fixed-income and money market funds than stock funds.

``There’s clearly been a shift in investors’ sentiment toward caution,″ said Robert Adler of AMG Data, which tracks 12,000 funds weekly. ``Fear isn’t being expressed, but caution is.″

Frank O’Neill, for one, is growing wary. The New York television executive hasn’t transferred money in or out of his mutual fund portfolio. But last week he changed his mind on investing more money.

``The market has needed a correction for a while,″ he said. ``And anyhow, there might be better deals in the fall.″

In the week ended August 5 _ the day after the Dow plunged 300 points, $468 million flowed into equity funds tracked by Adler’s firm, compared with an average $3 billion a week earlier in the summer. He said that investors have been taking money out of technology and small company stocks.

Trimtabs.com, a firm that tracks 3,400 mutual funds, reported a similar shift, said Carl Wittnebert, the Santa Rosa, Calif.-based company’s director of research.

On Aug. 4, investors withdrew $1.1 billion from stock funds. Money flowed back in Wednesday and Thursday, but at the end of the three days the net result was a $129 million drain. That compares with a daily average inflow of $900 million a day in 1998.

``They’re not buying, which means they’re worried,″ said Wittnebert. ``It gives me the feeling that they’re waiting for the market to stabilize.″

A spokeswoman for Fidelity Investments, the nation’s largest mutual fund firm, reported a ``negligible movement″ out of equity funds last week. ``People were mostly focusing on conservative investments,″ said Anne Crowley, who had no detail on this week’s activity.

Even 401(k) investors, who have been told again and again to sit tight during market swings, have found it tough to stay put.

Employees at Finova, a Phoenix-based financial services company, have been moving money out of one of their most popular 401(k) mutual funds, and instead investing in money market and Treasury funds, said Tim Reuling, a T. Rowe Price retirement fund manager who handles the Finova funds.

A Hewitt Associates study confirms that some employees are growing more worried _ or trying to time the market.

Trading activity among a sample of 1.4 million 401(k) participants at large companies found that trading activity doubled on Aug. 4, the day of the Dow’s 300-point pullback, with money flowing out of stock funds and into fixed income funds. Similar activity was reported for the next two days.

James Di Gesu, a financial planner with KPMG, placed part of the blame for the growth in 401(k) market-traders on the plethora in fund options available to employees.

``People are running with whatever is No. 1,″ he lamented. ``But while it may be No. 1 today, tomorrow is more important.″

Not everyone, however, wants to get deeply involved with the market’s current ups and downs. Nancy Wooldridge, director of work-family programs at USAA financial services, says she tries not to be overly concerned about her 401(k) plan.

``I’m one of those nonchalant investors,″ she laughed. ``I’m sure it’s not doing as well as it has in the past, but at this point I just prefer not to know.″

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