Stock Fund Inflows Beating ’96

Investors continue to shovel cash into stock mutual funds at a record pace, many fund companies reported Tuesday--against the backdrop of new data showing just how spectacular a year 1996 was for the fund industry.

Fund groups including OppenheimerFunds, Vanguard Group, Putnam Investments, T. Rowe Price Associates, Janus Capital, MFS Investment Management and Scudder, Stevens & Clark all said January’s stock fund inflows are on pace to top last January’s record, which saw $28.9 billion flow into funds industrywide.

A smaller group of fund companies, including Fidelity Investments and Aim Management, said net fund inflows were slightly below last January’s levels but still ahead of December’s figures.

January tends to be the top purchase month of the year for mutual fund groups because it’s the time when many companies match contributions that employees make in retirement plans. Also, January is the month when the highest number of new 401(k) plans are established.

“Our 401(k) business is accounting for about one-third of this month’s inflows,” said Jerry Potts, marketing director at Boston-based MFS Investment Management.

Meanwhile Tuesday, the Investment Company Institute, the chief trade group for the fund industry, released final data on 1996 industry trends.

The ICI said a net $222.1 billion poured into stock funds during all of 1996, including $12.2 billion in December. The 1996 total exceeded, by a stunning 70%, the previous record high of $129.6 billion set in 1993.

Stock fund assets skyrocketed to $1.75 trillion at the end of 1996, up 38% from $1.27 billion at the end of 1995 and up from just $246 billion at the end of 1990.

Stock funds’ growth in assets in 1996 was produced half by net new cash flow and half by the market appreciation of stocks during the year, according to Mitchell Post, the ICI’s deputy chief economist.

Bond funds, in contrast, took in net new cash of just $13.2 billion in 1996, the ICI reported. Bond fund assets at the end of the year were $886 billion, up 11% from $798 billion at the end of 1995.

While Americans had more money in bond funds than in stock funds as recently as 1993, many investors have soured on bonds because of interest rate gyrations--and because the continually rising stock market has become overwhelmingly seductive.

“We’ve been spoiled by a market that keeps going up, up, up,” said Janis Miller, Putnam’s managing director of retail marketing. “The questions is, will investors keep investing when the market is falling?”

Yet as money continues to pour in, stocks’ gains may continue to simply feed on themselves. “The market is going to have a tough time going down if money keeps pouring into mutual funds at the rate it is,” said Tim Pitts, executive vice president of OppenheimerFunds in New York. “Someday we’ll have a bear market, but there’s more buying support for this market than ever before.”

And as quickly as investors send money to stock funds, the funds’ managers are putting it to work in stocks even more quickly.

The ICI said stock fund managers were holding less cash on a percentage basis than at any time since January 1977. The average stock fund had 5.5% of its assets in cash at the end of December, down from 5.9% on Nov. 30.

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Boom Times

Stock mutual fund assets have mushroomed in recent years, while bond fund assets have grown at a relatively slow pace. Assets, in billions:

Stock funds: $1,752

Bond funds: $886

Source: Investment Company Institute