Attracted by the allure of the "new economy," institutional asset managers in the past year have shifted billions of dollars from old standard stocks into the faster paced darlings of the information age.
An analysis of 10 large cap companies, longtime fixtures in most pension fund portfolios, and 10 information technology companies representative of the new economy showed institutional investments in the new economy companies increased by $77 billion, or 10%, between June 1998 and the end of 1999. At the same time, the 10 old economy stocks experienced a net outflow of $7 billion. Both figures represent actual dollar flows and exclude the effects of market appreciation.
The information was compiled for Pensions & Investments by The Carson Group, a New York financial research firm. The Carson Group data suggest that institutional ownership of total shares outstanding of new economy stocks is rising, a sign of confidence by institutional asset managers in the continued growth and appreciation prospects for technology and Internet companies.
The study by Sri Cidambi, associate director at the Carson Group, was designed to obtain a broad picture of the market behavior of institutional asset managers in today's market.
Institutional investor activity studied by the Carson Group includes asset managers with more than $100 million each under management and excludes mutual funds.
Old economy companies in the study are General Electric Co., Procter & Gamble Co, Sears Roebuck & Co., Caterpillar Inc., Deere & Co., Coca-Cola Co., General Motors Corp., Schlumberger Ltd., Whirlpool Corp., and E.I du Pont de Nemours & Co.
New economy companies in the study were Amazon.com Inc., Cisco Systems Inc., i2 Technologies Inc., Microsoft Corp., Qualcomm Inc., America Online Inc., Intel Corp., Motorola Inc., Nortel Networks Corp. and Yahoo! Inc.
Total institutional assets invested in the 10 new economy stocks grew to $851 billion as of Dec. 31 from $773 billion as of June 30, 1998, while the 10 old economy stocks saw a net outflow of $7 billion, down to $496 billion as of Dec. 31.
Microsoft, Intel, Motorola, Qualcomm and Yahoo!, according to the Carson Group, captured most of the increase. Institutional ownership of total shares outstanding of Microsoft increased to 41% during the period, and Intel's institutional ownership increased to 49% from 44%.
As might be expected, old economy stocks experienced a decline in institutional ownership Coke went from 51% to 48%, Sears from 78% to 69% and Caterpillar from 89% to 64%.
Of the 10 old economy stocks, only General Electric experienced increased institutional interest over the past two years, according Mr. Cidambi. New initiatives by GE for capitalizing on the Internet to help increase sales margins may have been an encouraging sign to investors, he said.
More recently, General Motors has signed an agreement with i2 Technologies to help manage its supply chain, while Sears has announced a partnership with America Online.