ROCKVILLE, Md. -- The much-discussed "January effect," usually thought to be a phenomenon restricted to the performance of small- vs. large-capitalization stocks, also spans asset classes, at least as far as mutual funds go.
CDA/Wiesenberger studied mutual fund returns back to 1934 to see if there were correlations to better returns in January broader than just in small-cap stock funds. Over time, January produced the highest monthly returns for seven of nine diversified mutual fund categories: aggressive growth; domestic growth; emerging markets; equity income; global equity; growth and income; and small-cap.
Over time, foreign equity mutual funds saw best monthly returns in December. November was best for midcap funds.
However, CDA/Wiesenberger found the good returns of the January effect disappeared for domestic equity funds in the 1990s. Only international equity funds claimed January as their best month in this decade and then, only for the global equity category in 1994 and emerging markets equity in 1997. The study doesn't offer an explanation for why the '90s haven't produced the same effect.
CDA/Wiesenberger identified the following causes of the January effect:
* Tax-loss selling by investors before the end of a year to offset capital gains. This acts as an artificial depressant in the last weeks of December, which results in an equally artificial rebound in January.
* Window dressing by portfolio managers who try to boost year-end numbers by playing less-liquid small-cap issues. This raises prices of small-cap stocks through January.
* Decisions by individual investors to wait to make investments in equity funds until January, after year-end capital gain and dividend pay-outs have brought share prices down.
Survey finds investors are learning, but slowly
MALVERN, Pa. -- Americans are slowly increasing their investment knowledge, according to a survey of more than 1,500 mutual fund investors conducted by The Vanguard Group of Investment Cos. and Money magazine.
Investors showed only a two percentage point improvement in mean scores over two years in the accuracy of their investment understanding. The mean score was 51% in the 1997 Vanguard/Money Mutual Fund Literacy survey vs. 49% in the survey two years earlier.
Mutual fund investors were asked 20 questions to measure their knowledge of investment concepts concerning asset classes and allocation.
Only one in five investors scored 70 or better on the test and more than half scored 50 or worse. Vanguard officials identified four areas where mutual fund investors needed more education: indexing, diversification, fund costs and bonds.
Mutual fund inflows rise 21% in 1997
BOSTON -- Some of the more interesting industry tidbits uncovered by mutual fund tracker Financial Research Corp. in its fourth-quarter Market Analyst report included:
* 1997 long-term net inflows to mutual funds in 1997 were $259.9 billion, a 21% increase from the $215.1 billion of 1996.
* Growth and income funds saw the most net flow in 1997 with $53.8 billion, an increase of 37% from their $39.2 billion in 1996. This category nudged out the former No. 1 category, growth funds, which took in only slightly more in 1997 than they did in 1996 ($41.8 billion vs. $40.2 billion). International equity finds dropped to fourth place from third with net flows of $21.3 billion in 1997 compared with $25.5 billion in 1996.
* Vanguard's net long-term flows were the industry's highest at $38.1 billion, a 32% increase from the $28.8 billion it attracted in 1996.
* Davis Select Advisors enjoyed tremendous growth in 1997 of $4 billion, a 264% increase in net long-term flow from the $1.1 billion it gained in 1996. The Davis N.Y. Venture Fund accounted for 75% of the net total.
* Franklin Templeton also had huge growth in net fund sales, led by the perennially popular Templeton Foreign Fund, which attracted $3.2 billion. Net long-term flow was $15.2 billion in 1997, a 61% increase from 1996. One of every four Franklin Templeton funds carries a four- or five-star rating from Morningstar Inc.
* Scudder Kemper Investments Inc., Chicago, announced the introduction of the Kemper-Dreman Financial Services Fund, managed by contrarian investor David Dreman. The new fund seeks long-term capital appreciation by investing in financial services companies.
Mr. Dreman recently signed a five-year agreement with Scudder Kemper that locks his company, Dreman Value Management, into an exclusive five-year agreement for managing mutual funds only under the Kemper Funds name.
Two sector funds also were launched -- the Scudder Health Care Fund and the Scudder Technology Fund. The funds are part of the new Scudder Choice Series of industry-specific funds, which was launched in November with the Scudder Financial Services Fund. Kimberly Purvis and James Fenger co-manage the health care fund and Brooks Dougherty is the manager of the technology fund.
* LaSalle Partners Inc., New York, launched its first mutual fund, the LaSalle Partners U.S. Real Estate Fund, the first of a series. William K. Morrill Jr. and Keith R. Pauley will co-manage the fund. Both have managed REIT securities for institutional clients since 1985.
The fund is available for both retail and institutional investors.
* Conseco Inc., Carmel, Ind., added three funds -- the Conseco 20 Fund, the High Yield Fund and the International Fund. Two of the three are managed by a subsidiary, Conseco Capital Management.
Thomas Pence and Erik Voss manage the Conseco 20 Fund, a concentrated portfolio of about 20 stocks. The High Yield Fund is managed by Peter Andersen, Michael Buchanan and William Ficca.
Conseco hired AMR Investment Services Inc., Dallas-Fort Worth Airport, to manage the International Equity Fund. Assets will be invested in the International Equity Portfolio of the AMR Investment Services Trust. The international portion of AMR's trust in turn is subadvised by Hotchkis & Wiley, Morgan Stanley Institutional Investment Management and Templeton Investment Counsel.
Separately, D. Bruce Johnston was named director of retail mutual fund sales and marketing, a new position. Mr. Johnston most recently was a senior vice president at INTEK, a teleservicing firm.
* Neuberger & Berman Management Inc., New York, introduced the Neuberger & Berman High Yield Bond Fund, which will invest in lower-rated debt securities. Theodore Giuliano and Thomas Wolfe lead the team managing the new fund. Mr. Giuliano is manager of the company's fixed-income group and Mr. Wolfe is the director of fixed-income credit research.
* The Pioneer Group Inc., Boston, celebrated the 70th anniversary of the Pioneer Fund in February, making it apparently the fourth oldest mutual fund in the United States. The fund is on only its third portfolio manager in all that time -- John A. Carey took over the fund in 1986 and is still applying the value strategy developed by fund founder Philip A. Carret in 1928.
The fund's performance remains strong: under Mr. Carey's management, the one-year return as of Jan. 31 was 33.31%, making it fifth among the 633 mutual funds in the growth and income category of Lipper Analytical Services Inc., New York.
* The Colonial Group Inc., Boston, renamed the Colonial Tax-Managed Growth Fund, the Stein Roe Advisor Tax-Managed Growth Fund. Stein Roe & Farnham Inc. has been the fund's manager since its inception Dec. 30, 1996. Both companies are subsidiaries of Liberty Financial Cos., Boston.
Christine Williamson can be reached at [email protected]