- Investors yanked record amounts from stock mutual funds
in July, but the mass exodus might have set the stage for August's sharp
rebound in stock prices.
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- Worried investors pulled $49 billion from stock mutual
funds last month -- the most ever, according to an estimate released Monday
by Lipper. That follows an $18 billion net outflow in June.
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- July's redemptions were even bigger than September's,
when the terrorist attacks on New York City and Washington prompted investors
to pull $30 billion from stock funds.
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- Experts view big fund outflows as good news.
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- ''This was classic crowd behavior, probably marking a
significant market bottom,'' says Don Cassidy, Lipper research analyst.
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- Investors often panic and sell precisely at the worst
time, leaving bargains in the wreckage. Wall Street wisdom holds that investors
should buy when extremely heavy selling flushes out the last remaining
potential sellers. Huge outflows from stock funds are one way to measure
panic selling.
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- True to form, the stock market rallied sharply, albeit
briefly, after investors fled stock funds in September. Those who pulled
out in July have missed the market's late summer surge. The S&P 500
has soared 18% since hitting a July 23 low.
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- Big losses earlier in the month spurred July's redemptions.
The average stock mutual fund fell 9.4% last month and 28.1% since the
bear market began in March 2000. The Standard & Poor's 500 stock index
fell 35%. Wall Street's losses the past 28 months have been so damaging
that investors would have earned more from money market funds than stock
funds the past five years.
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- ''The pain and the fear became unbearable, and several
million investors gave up at virtually the same time,'' Cassidy says.
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- Huge inflows into funds often signal market tops. In
that case, bond-fund investors could have a rough ride. Bond funds raked
in a record $19.2 billion in July, according to Lipper estimates. Investors
were lured to bond funds because those are viewed as safer and less volatile
than stocks, although they carry risks, too. In addition, $31 billion went
to money funds.
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- Mutual fund companies are downplaying the outflows. Stock
funds typically have redemptions every month, even in bull markets. But
a flow of new money usually overpowers the selling. Fund companies say
investors didn't bolt in July -- buying dried up.
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- At Vanguard, a record $2.7 billion fled stock funds in
July, but the company said outflows were less than 1% of its stock-fund
assets. And $4.3 billion went to bond funds and $1 billion went to money
market funds.
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- Total July fund outflows equaled 1.6% of the $3 trillion
in stock funds. In percentage terms, the largest outflows from stock funds
occurred in October 1987, when 3.2% of all stock-fund assets, or $7.5 billion,
fled after that month's market crash.
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- Large-company growth funds, the hottest funds of the
1990s, saw $7.6 billion flee last month. Tech funds, also '90s winners,
had $1.1 billion exit.
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- Copyright © 2002 USA TODAY, a division of Gannett
Co. Inc.
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