Mutual fund investors poured $8 billion into international and global stock funds in January, reversing a weak trend through 1995.
While February figures from the Investment Co. Institute have not been released yet, fund companies surveyed by Pensions & Investments report continued positive inflows into March.
"It's almost as if someone shot a gun Jan. 2 and said 'we're off to the races' in terms of international equity flows," said Gavin Quill, marketing vice president in the Boston office of Scudder, Stevens & Clark.
INVESCO spokesman Win Paul said 1995 was a roller-coaster ride. Cash flows were negative in January and February, May and June, and September and October. But they were positive in March and April, July and August, and November and December.
"Every two months we flip-flopped," he said.
This year "we're definitely seeing more interest. March looks pretty good. People are starting to look at international markets again," Mr. Paul said.
Net cash flows into open-end international and global stock funds, including regional, single country and emerging markets funds, were positive at every fund company surveyed by P&I for the first two months of 1996. March's numbers also look strong, although it's too soon to tell.
T. Rowe Price Associates Inc., Baltimore, has seen $715 million in net cash flows into its international and global stock funds in January and February. That's significantly more than T. Rowe Price's $596 million in net cash flows during all of last year, and almost nine times the $80 million in net cash flows in the first two months of 1995. In 1994, net cash flows were a robust $2.8 billion.
Rowena Itchon, a spokeswoman, said the flagship T. Rowe Price International Stock fund is one of the firm's most popular among defined contribution plan sponsors.
At Charles Schwab & Co., San Francisco, which tracks mutual fund flows among its more than 3.5 million retail accounts, international growth funds had $477.1 million in what it terms "net buys" in January after having only $53.8 million in December. February showed continued strength with net buys of $255.5 million.
Compare those figures to the December 1994 and January 1995, when Schwab account holders made "net sells" of $137.6 million and $116.2 million, respectively, from international growth funds. The Schwab figures exclude mutual funds not available for retail purchases, such as those that might be bought only through investment advisers.
Fidelity Investments, Boston, had cash flows in international stock funds of $1 billion in January and estimated more than $200 million in February, according to Andy Trincia, a spokesman.
At Franklin Templeton Group, which has $30 billion in international and global stock funds, in January and February alone, total net cash inflows amounted to half of the level for all of 1995. "Cash flows are growing at a slightly faster rate than 1994, and 1994 was our best year," said Holly Gibson, a spokeswoman.
With all of the attention to record domestic stock flows in 1995, it's easy to forget what a profound impact international flows can have on stock flows overall.
In 1995, about 10% of net stock mutual fund sales - $12 billion of $119 billion - went to international/global stock funds. In 1994, foreign funds accounted for 37%, or $54 billion, of the $144 billion overall stock fund total, according to Investment Co. Institute figures. That was a peak for international/global.
"In 1995, the huge drop in international brought down the overall net sales," Scudder's Mr. Quill said.
This year, he said, even if international flows rise to 20% of total stock fund flows, a far cry from the 37% record, the asset gains in overall stock fund flows could be vast.
The strong 1996 cash flows indicate investors are heeding the advice of economists and market experts, many of whom predicted late last year international markets might outperform the U.S. market in 1996.
"In late 1995 we started to see a change in investor psychology. Investors were starting to look at other markets. They assumed there might be better returns available overseas," said Larry Kantor, managing director of the Lexington Group of Investment Cos., Saddle Brook, N.J.
Echoed Mr. Paul of INVESCO: "Investors said 'what do you do for an encore after 1995?' They're taking some money off the table in the U.S. and putting it overseas in 1996."
Despite the relatively lackluster returns of foreign markets vs. domestic last year, investors are betting on a rebound overseas. In emerging markets, it's already happening. But the Standard & Poor's 500 Stock Index remains a tough benchmark to beat, with a gain of 6.4% in the first two months. And developed foreign markets are barely up so far this year. The Morgan Stanley Capital International Europe Australasia Far East Index is up 0.8%, in U.S. dollar terms with gross dividends reinvested. The firm's Emerging Markets Free index is up 5.41%.
"Psychologically investors believe that the domestic market can't keep going up," said Anne W. Patenaude, vice president-marketing programs of Pioneer Funds Distributors Inc., Boston, which has seen its foreign stock flows increase compared to 1995 - from new money, not exchanges.
"We have certainly seen considerably more interest this year in our international funds than we did last year even though we're still seeing interest in domestic funds. It's not surprising given the movements in emerging markets funds," she said.
Jeff Van Giesen, vice president and senior product manager for equities at Oppenheimer Funds, New York, said: "Just as asset allocation filtered down from the institutional to the retail arena, global investing is now becoming an important part of everyone's financial portfolio."
Oppenheimer has taken a global approach to investing but, to accommodate financial advisers who wish to control their clients' asset allocation, the firm will introduce its first non-U.S. stock fund later this month.
Like Templeton, T. Rowe Price and Fidelity, smaller fund companies also enjoyed the renewed interest in foreign stock funds.
The SoGen Funds, New York, with $3.6 billion in assets, had $241.1 million in net sales in January and February for its flagship SoGen International Fund and SoGen Overseas fund. Part of the gains stemmed from the reopening of SoGen International to new investors. In contrast, for calendar year 1995, net sales of SoGen funds were only $19.8 million, according to Howard Monaghan, assistant vice president.
Lexington, which manages $1.8 billion in mutual funds, had $100 million in net cash flows into its Worldwide Emerging Markets fund in January and February, bringing assets up to $380 million from $260 million at the end of 1995, according to Mr. Kantor. But 1994 was also an up year, with full-year net cash flows of $60 million.
"Last year, cash flows into that fund were flat for the year," he said.
Scudder Funds saw more than $70 million in net cash flows in January after having seen monthly net outflows averaging $15 million from October through December. In February, inflows were $10 million. The chief beneficiary was the Scudder International Fund, a core offering.
"A lot came from 401(k) plans, but international has picked up across the board from a very low level in 1995," Mr. Quill said. In 1995, Scudder had net cash outflows of $300 million from international/global stock funds. The prior two years were stellar, with net cash inflows of $1 billion in 1994 and $1.7 billion in 1993.
INVESCO Funds Group, Denver, which has $13 billion in retail mutual funds, had net cash inflows in January and February combined of $50 million for its eight international/global stock funds. It had negative net cash flows of $26 million in the full year 1994 and negative $93.7 million in 1995. INVESCO's domestic stock funds had $326 million in net cash flows this year through March 8.
At Janus Funds, Denver, which has had positive inflows into its Worldwide and Overseas funds since January 1994, net cash flows nearly tripled to $240.9 million in January 1996 from $82.5 million in December 1995.