Credit Crunch Takes Toll On Stock Funds
Spooked by the credit crisis, investors have yanked billions of dollars from stock and bond mutual funds since the mortgage meltdown began in August.
Investors pulled $10.9 billion from stock funds in November, according to the Investment Company Institute, the funds’ trade group. It was the largest net outflow since August, when investors pulled $12.3 billion from stock funds at the outset of the credit crunch.
The outflows have continued in December, says TrimTabs, which tracks the funds. “We think there will be about a $20 billion outflow from U.S. stock funds and $4 billion from international funds” in December, says Conrad Gann, chief operating officer for TrimTabs.
Some fund categories have seen big outflows since the credit crunch began and set off worries about the broader economy’s outlook.
The biggest losers: value funds, which look for undervalued stocks of unloved companies. Investors have moved an estimated $17.6 billion out of value funds since August, according to Lipper, which tracks the funds.
Value funds have been lagging behind rival growth funds, which look for stocks of companies with rapidly rising earnings. Large-company value funds have lost an average 0.2 percent since July 31, versus an 8.3 percent gain for large-growth funds.
But investors may also be spooked because value funds have big stakes in financial services stocks, which have been pummeled during the credit crisis. Large value funds have an average of 25.6 percent of their portfolios in financial services stocks, says Morningstar, versus 18.4 percent for the Standard and Poor’s 500-stock index.
The credit crunch has prompted investors to flee some fund categories wholesale:
• Ultrashort bond funds, often billed as a low-risk way to earn higher yields than money funds, saw $6 billion flee from August through November. The funds have just $28 billion in assets, says Jeff Tjornehoj, senior research analyst at Lipper. “They were billed as money funds on steroids,” Tjornehoj says.
But a few private, institutional funds that touted higher yields than money funds collapsed during the credit crunch, and that may have prompted the flight from ultrashort bond funds, Tjornehoj says.
• Loan participation funds, also billed as steady performers with better yields than money funds, had $2.9 billion leave from August through November.
“They have really gotten hammered,” Tjornehoj says. The funds, which have just $24 billion in assets, fell 1.5 percent in November, a big loss for a fund category that’s touted for low volatility.
The biggest gainers: money market funds, which have seen more than $350 billion in new money since August. Money funds are the traditional haven for investors worried about turmoil in the markets.
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