The tide is turning from flood to ebb in stock mutual fund money flows, including international funds, which had been the year's shining star.
Stock investors' patience apparently has run out, thanks to the back-to-back market declines of November. November net cash flows into domestic stock funds did a stunning about-face at Fidelity Investments, Boston, while international stock funds saw net redemptions for the second consecutive month. GT Management, San Francisco, and Scudder, Stevens & Clark, New York, both known for their international funds, experienced net cash outflows in international and global stock funds in November after a healthy October.
"Everybody's been marveling at investors' fortitude in the face of bad stock and bond markets. It finally caught up in November," said Stephen Savage, editor of the Value Line mutual fund survey, New York.
"Obviously there has been a sharp slowdown in cash flows both internationally and domestically," said Steve Norwitz, vice president of T. Rowe Price Associates Inc., Baltimore.
"These are the first meaningful net outflows in international in 1994," said Gavin Quill, marketing vice president of Scudder, Stevens & Clark.
Fidelity's net cash inflows for domestic equity funds totaled $682 million in October, but in November, Fidelity stock funds experienced $195 million in net redemptions. For international equities, net redemptions totaled $102 million in October and more than doubled to $279 million in November, according to Marilyn Morrison, a Fidelity spokeswoman.
For the first nine days of December, Fidelity had $110 million in net cash outflows for its international stock funds.
Fidelity has $7.29 billion in international equity funds and $77 billion in domestic equity funds.
Mutual fund net cash flow figures include reinvested dividends less redemptions.
After an exceptionally strong October, with $230 million in international equity net cash inflows, according to Mr. Norwitz, T. Rowe Price had net cash inflows of only $75 million to $80 million in November, based on preliminary numbers. "November was a tough month. The Asian markets got hit real hard," he said.
For domestic stock funds, T. Rowe Price's November net cash flows nearly halved to $70 million to $75 million from $131 million in October.
"The killer was New Asia. ... New Asia's performance was pretty well reflected in the net cash flows." The New Asia fund's total return declined 8.6% during November, while the international fund declined 4.5%. Those results were somewhat offset by the Europe fund, "which did real well," Mr. Norwitz said.
For domestic stock funds in the first nine days of December, cash outflows at T. Rowe Price have been keeping pace with inflows.
T. Rowe Price has $10 billion in foreign equity funds and $12.3 billion in domestic equity funds.
At Scudder, which has $4.3 billion in domestic equity funds, there were moderate net inflows of $35 million in October, followed by $23 million in net outflows in November. In the first 13 days of December, domestic stock funds have recovered with a "minuscule $3.3 million in net inflows," said Mr. Quill.
He attributed the November redemptions to the 91-point drop in the Dow Jones industrial average in the middle of November. "We had been keeping the October trend through most of November. That one-week period connected to the drop is when all of the outflows took place. We're back in the black per se, but we're not looking for December to be a month of huge net inflows."
That's because the investing public is increasingly aware of tax-related capital gains payouts made for equity funds at year-end, and choose to defer investments until January to avoid payouts of capital gains, he said.
For Scudder's $5.5 billion in international equity funds, net inflows in October were $45 million. In November, the firm experienced net outflows of $47 million. In the first 13 days of December, there were $12 million in net outflows of international stock funds.
GT, with $9.5 billion in mutual funds, almost all foreign, had positive net cash flows in international and global stock funds of $164 million in October followed by negative net cash flows of $208 million in November.
"October was a good month. November was not such a good month," said Nick Mencher, director of institutional marketing of the San Francisco-based firm, adding almost all of the assets were transferred to GT money market accounts.
At the Oppenheimer Funds, New York, run by Oppenheimer Management Corp., where all foreign stock funds are global, net cash flows in November were $3.3 million, a steep decline from October's $44.3 million. "October was a pretty good month for global but a break-even month for overall stock funds," compared to October 1993, said Steve Dunbar, senior associate, public affairs. Oppenheimer's global stock fund assets total $2.5 billion.
For Oppenheimer's $7.4 billion in domestic stock funds, net inflows in November nearly halved to $72.6 million from $135.6 million the prior month.
Mutual fund company officials hope the new year will restore positive equity flows, at least in international.
For the mutual fund industry as a whole, in the past four weeks, only $2.4 billion flowed into equity mutual funds, of which $147 million went to international funds, according to figures from Salomon Brothers Inc., New York. By contrast, more than $10 billion flowed into money market funds.
"All things being equal, January would show some improvement because of that pent-up buying demand. In the last three years we've had very significant net sales (of) equity funds in January. The peak month has been January for three years in a row," said Scudder's Mr. Quill. "Markets have tended to do pretty well in January."
Another positive factor is that year-end bonuses often are paid out in January.
Unlike 1993, when some emerging markets funds earned returns of 50% to 70%, 1994 has been characterized by negative returns in many key markets.
Nevertheless, international stock flows were healthy until very recently.
"Over the very long term you're not going to get rid of the cyclicality of performance and cash flows in response to performance, but you will see a very steady secular trend toward increasing allocations to international markets. I don't expect a long continuation of net outflows from international. There's just this underlying irresistible force," Mr. Quill said, adding that for individuals wanting diversified foreign exposure, "mutual funds are the only game in town."
Mr. Quill is not as certain about the outlook for domestic flows.
"We're seeing a fair amount of caution," Mr. Quill said. "The competition of higher interest rates (in bonds) on the margin might tend to woo away assets that were allocated to equities because bonds were not yielding enough. Now they are."
But Value Line's Mr. Savage said he'd be "very surprised to see an extended period of net outflows" in part because of the growth of 401(k) participants investing for the long-term.
Some niche players are having a good quarter despite gyrations.
"We will have a record quarter. ... We continue to believe people and institutions are acknowledging the viability of global diversification from the potential return and risk element," said John Story, executive vice president of Montgomery Asset Management, San Francisco, which has grown by $1.1 billion this year purely through net cash flows. "Obviously some people are nervous that short-term results are not as attractive as in the past. Some are pulling back, but a larger number of people are still making commitments. Subscriptions are outweighing the redemptions," he said. Montgomery's mutual fund assets now total $2.3 billion, of which 60%, or $1.3 billion, is international. Forty percent of 1994's net cash flows so far has come into international funds, but the firm has also attracted assets to its top-performing domestic growth fund, he said.