It used to be that when the going got tough, investors got going -- away. But even as the stock market had its worst start in nearly 20 years, retail investors -- not institutional -- are still charging ahead.
Individuals set a new record in their enthusiasm for stock funds in January, pouring almost $40 billion into them, according to the Investment Company Institute in Washington.
That followed an especially strong December. The previous record was $28.5 billion, set in January 1997.
But somebody had to be selling, considering that the Standard & Poor's 500 stock index dropped 7% in the first two months of this year.
The culprits? Institutional investors/pension funds and foreign investors.
Corporate pension funds continued reducing their stock positions, which had become way above their target levels due to last year's strong market. And public pension funds slowed their buying through 1999.
Foreigners, emboldened by impressive returns in their own markets, started looking in their back yards.
"Foreign buying has been one of the biggest forces in our market in recent years," said Ken Safian of Safian Investment Research in White Plains, N.Y.
Still, he adds,"corporate pension funds have been selling all along."
In 1998, corporate funds took more than $52 billion out of the market. Through the first three quarters of 1999, they yanked another $57 billion. Public pension funds have started cutting back, too. After plowing $91 billion into the stock market in 1998, they scaled back to $52 billion in the first nine months of 1999. That pace didn't pick up much in the fourth quarter, Mr. Safian says, although figures are not yet available.
So that left mom-and-pop investors to stoke the coals. But they didn't seem to mind.
The market hasn't started the year this poorly since the bear market of 1982, when it lost 6.8% in the first two months.
"Simply, money is coming out of the stocks that are the big contributors to the popular indexes and has been going into technology," says Thomas McManus, a portfolio strategist who follows fund flows in New York with Banc of America Securities.
Last year's darlings are hardly today's superstars. Internet portal Yahoo! Inc. was down 26.7% through March 1. Microsoft Corp., beset by its legal woes, was down 22%. And cell phone manufacturer Qualcomm Inc., last year's biggest celebrity with a leap of more than 2,000%, is down 21%.
Taking their place are smaller tech stocks, including laser specialist JDS Unithase Corp., up 62.24% this year, that are finally getting a piece of the action.
"What you had was people making a commitment to the new economy and accelerating their commitment out of the old economy," says Avi Nachmany, president of Strategic Insight in New York.
Aggressive growth favored
According to Financial Research Corp. of Boston, the majority of investors placed bets on aggressive growth and technology funds in January. Some relatively new market players emerged as the biggest recipients of cash. Among the 20 top-selling funds in January, more than 20% were technology funds. The rest were mainly growth offerings with a strong emphasis on that white-hot sector, according to data from FRC.
Funds like Janus Global Technology Fund, which closed to new investors in January, took in $1.5 billion; Munder NetNet got $600 million; and T. Rowe Price Associates' Science and Technology attracted $613 million in new money.
"It's remarkable how concentrated those flows are," says Mr. McManus.
All of that cash wasn't enough to keep the market in the black in January.
The S&P 500 lost 5.6% of its value, while the Dow Jones industrial average declined by 4.8%. The tech-heavy Nasdaq Composite fell 3.16%.
Faith in recoveries
The other side of the coin is that investors started to believe in recoveries around the globe. With Brazil back on track, South Korea making a strong showing and India riding the technology boom, investors handed over their cash to international offerings.
"If you have money going into international funds, that doesn't do anything for our market," says Mr. Safian.
Indeed, $11.6 billion went into international and global bonds, according to FRC, the biggest such inflow since January 1994. Though foreigners had been piling on the cash in American stocks, Mr. Safian believes the tide may be turning. More of them are keeping money at home, he says, though the Federal Reserve hasn't yet issued numbers for January showing foreign ownership of U.S. equities.